The best way to understand the benefit of a trust is to consider who it is designed to benefit and protect first and then contrast it against probate administration. From my experience as an attorney, the probate administration focuses upon protecting the creditors above all. Think about it, the first recipient of your assets after you pass are your creditors – what debts do you have? What bills do you owe? What will the funeral cost? Then from there, it’s putting a valuation on your property – is it enough to cover those expenses? Also, since a probate administration requires a formal public announcement, it is in public record and thus open to companies who monitor estate filings to start reaching out and attempting to make claims against your estate.
Finally, since the entire process needs to be done with an attorney and approved through the court system – there are many fees that need to be covered: filing fee, public notice, attorney’s fees and expenses, personal representative’s fees and expenses. Then, and only then can your beneficiaries recoup what you’ve left for them. Your legacy is chopped up to pay administrative expenses through the probate administration procedures. Stings, doesn’t it? Worst case, your probate assets aren’t able to cover those debts, so what is intended for your beneficiaries may not reach them. Best case, you still give up a percentage of your estate to unintended beneficiaries: the state, the attorney, and the personal representative.
A trust allows for you to decide who will control your assets and how they reach your intended beneficiaries. Trusts can take on multiple forms and have various purposes and benefits; they do not have to be limited to the one size fits all expectation as found in the Probate Code. But, naturally, there are hesitations about allowing someone that much control over and access to, your legacy. So, reach out to attorneys and professionals who can assist with mitigating that concern. After all, the idea of preparing for what happens after you pass is stressful enough. Here is a little insight to help you rest easy, protections for you and your legacy are still codified in the Florida Statute and Federal Code.
The trustee acts as a loyal guardian of your assets wielding them only to those detailed in the trust and failure to comply with this responsibility exposes him or her to personal liability. There are numerous federal and state laws that must be followed and failure to do so also exposes the trustee to personal liability. Also, the trustee maintains communication with the beneficiaries and fulfills the responsibilities set forth in transferring the assets to them. They cannot delineate guidelines or update the trust as he or she sees fit. He or she must also maintain accurate annual accounting information about the trust. All the assets, liabilities, revenues received, payments made, etc. and share that with the beneficiaries. Again, any failure to comply may result in personal liability.
A trust can also, if maintained properly, help keep your estate protected against possible state and federal tax consequences. As recognized elsewhere on this site, the federal estate tax limit is $5,430,000.00 per individual, some types of trusts allow for the amount of your spouse’s tax exemption to be ported over to the other spouse protecting nearly $11,000,000.00 of your estate from taxation after your passing, and that of your spouse. Spendthrift Trusts can protect a beneficiary from receiving too much at any given time. Maybe a beneficiary has a spouse you do not trust, or there is some sort of addition that affects their ability to use the money responsibly, or maybe there is a mental or physical condition that affects their abilities. The trustee can be tasked with and required to follow strict rules protecting the assets from the individual, while still using the assets for that individual’s benefit. Whatever the reason, a trustee is given authority to only distribute trust assets to the beneficiary under certain conditions.
Irrevocable Life Insurance Trusts (commonly referred to as ILIT) removes funds from your taxable estate, this is accomplished because you surrender (hence irrevocable) control of the ownership of the life insurance policy. ILIT’s are commonly used by individuals whose estate exceed the federal estate tax limit, it draws down the taxable amount left in the estate while at the same time gives the beneficiaries a tax free gift. Legacy Trust or Generation Skipping Trust’s (commonly referred to as GST) long term design is to give to the grantors grandchildren not to the children of the grantor. The children of the grantor may be given the benefit of the interest earned from the trust assets, but the principal is granted to the grandchildren. Generation Skipping Trusts are another trust vehicle that drive away from a grantors estate that might exceed the federal estate tax limit.
SETTING UP A TRUST
For those individuals or couples that are under the Federal Estate Tax limit ($5,430,000 per person), setting up a trust is a beneficial planning tool because it helps you avoid probate headaches and costs. At McNamara Legal Services, P.A., we are here to serve you in your time of need. If there is a single piece of information I can share with you before we begin working together, it’s that when it comes to preparing for the future of your assets, the most financially efficient method is through a trust and not enduring the tedium of probate. For a deeper explanation of probate, follow this
Here’s why: First, probate filing costs $400 in Collier County and the required advertisement in the local newspaper can be anywhere from $100 to $400. Both of these fees are paid through the estate, which means the money isn’t going to those who inherit the property or assets. The State of Florida also requires public notice of the decedent’s estate, a three-month waiting period before the assets and property can be distributed to the intended beneficiaries. Moreover, both the Personal Representative of an Estate (probate) and the attorney for the estate are entitled to a fee. See Fla. Stat. §733.6171 for specifics, but essentially each of the individuals are allowed to collect a fee of 3% of the value of the estate, and such a fee is presumed reasonable. Estates with probate assets under $75,000.00 and that qualify for summary administration have a different structure for the presumed reasonable fees. This structure can also be found in Fla. Stat. §733.6171.
With a trust, public notice isn’t required and the only cost to the court is a $40 filing fee to record a Notice of Trust. Also, it’s effective immediately whereas the probate administration process can take six months to a year depending on the complexity of the estate and what, if any, property needs to be sold. For more information about trust administration, follow this. But more than the details of fees and the like, I want you to think of this process like a game of chess. The king is going to fall. That is a fact. But does the king fall with his fleet still intact, or is the battle lengthy and with too many martyrs? The choice is yours and I’m here to help you decide.
DRAFTING TRUST AND WILLS
The process for you with an attorney when drafting a trust or a will is similar, but there are some key differences, read on to learn more.
As with anything in life, the beginning is typically the most challenging, and more often than not, it’s simply because it requires an acceptance of the current reality. When it comes to writing a will, that reality is the inevitability of the circle of life. But, honestly, in doing so, you’re putting the most important piece of your life down on paper – your legacy. And being in control of what that legacy will be is what a will document essentially states – what will become of my home? My work? My family?
It might be easiest to think of a will as a roadmap for what becomes of your probate assets after you pass. It is legal, binding, and signed by you and the witnesses. It lays out who receives what assets, or who the beneficiaries will be, and who will be the executor, or the person in charge of disseminating those assets. If an executor isn’t selected, the state will name one on your behalf. By writing a will the probate process is much simpler on your beneficiaries – most likely your children – and can be more efficient and ensures you remain in control of what happens to your life’s work, your assets, after you pass. If you have any questions or need to know what to include in writing your will, please, reach out. We are here to help you in your time of need.
A trust is simply an arrangement. It triangulates your assets away from creditors and to those you, “trust” most. The document outlines the assets held by the settlor, the person establishing the trust, and describes how the trustee, the individual responsible for the maintenance of the trust, shall distribute the assets for the benefit of a third person, the beneficiary. Depending on the type of trust, the settlor can either appoint himself as the trustee or someone else. In a revocable trust, the settlor is generally also appointed as the trustee because the settlor can still have access to the assets in the trust during his or her lifetime. In an irrevocable trust, the settlor generally names another individual as trustee because the settlor gives up control over the assets in the trust during his or her lifetime.
Since a trust is intended to reach the beneficiaries, there must be assets to go in it. This distinction is necessary because this doesn’t allow for profits from stocks, for example, to be included. Expectancy is not an asset. The settlor, or the person whose assets are going to be transferred, must designate a trustee, or a person in charge of managing the assets. This person would also determine the beneficiaries if the settlor doesn’t. Another key distinction between a trustee and a personal representative is a trustee can accept the appointment without the interference of the court, where a personal representative’s appointment in a will is not recognized until after the will is acknowledged by the court and the Letters of Administration are issued.
Finally, there must be a beneficiary, the person who will hold title to the trust and ultimately receive its benefits. Now I realize it can be daunting to think of entrusting anyone with that much authority over your assets, after all absolute power corrupts absolutely. So the state of Florida has numerous legal protections when creating a trust to avoid such abuse of power, including personal liability.