Florida Revocable Trust

WHAT IS A REVOCABLE TRUST?

In general, a trust is a relationship in which one person holds title to property (the “Trustee”), subject to an obligation to keep or use the property for the benefit of another.[1] The creator of the trust is called the “Grantor” or the “Settlor.” The typical revocable trust is created to manage the Grantor’s assets during the Grantor’s lifetime and distribute the remaining assets after the Grantor’s death. In addition, a revocable trust can serve a variety of purposes, including but not limited to: the power to amend or revoke the trust, control the disposition of your assets after deaths (subject to Florida Statutes), plan for incapacity during the Grantor’s lifetime, asset protection, and the avoidance of probate.

Florida trusts are governed by the Florida Trust Code (the “Code”). In order to create a valid trust in Florida, the following elements must be found:

  1. The settlor must have capacity to create the trust;
  2. The settlor indicates an intent to create a trust;
  3. The trust must have definite beneficiary;
  4. The trustee must have duties to perform; and
  5. The same person is not the sole trustee and sole beneficiary.[2]

In addition to the elements outlined above, the trust must be funded, either during the Grantor’s lifetime or through his Last Will and Testament or other disposition taking effect after the Grantor’s death.[3] Due to the testamentary aspects of a revocable trust, the Code requires that a revocable trust be executed with the same formalities as those needed to execute a will.[4] In order to abide by the will formalities, the Grantor should sign the trust at the end, in the presence of two (2) witnesses, and the witnesses must sign the trust in the presence of the Grantor and of each other.[5]

If all of the elements to create a trust are not found or the trust is not executed properly, then the trust will not be considered to be a valid trust under the Code. The consequence of having an invalid trust is that upon the Grantor’s death, the trust property will not be distributed according to the Grantor’s wishes; instead the trust property will be probated according to the decedent’s will (if any), or distributed according to the Florida intestacy statute (decedent died without a valid will). It is important to hire an attorney that is familiar with the rules required to execute wills and trusts in the State of Florida, as well as having periodical reviews of your estate plan.

One of the biggest misconceptions is that a Florida revocable trust protects the Grantor from the claims of his or her creditors. During the Grantor’s lifetime, the property in a revocable trust is subject to the claims of the Grantor’s creditors to the extent the property would not otherwise be exempt by law.[6] The reasoning behind this rule is that during the Grantor’s lifetime, the trust and the Grantor are treated as one and the same due to the Grantor’s power to amend and revoke the trust. Upon the Grantor’s death, any interest of a beneficiary subject to a “spendthrift provision” may be protected from the claims of the beneficiaries’ creditors.[7]

If you would like to know more about setting up a revocable trust, have questions about your existing trust, or if you would like to have more information regarding the different types of trust or estate planning questions in general, please feel free to give us a call or send us an email and we will be happy to assist.

 

[1] IRC 301.7701-4(a).

[2] Fla. Stat. § 736.0402(1).

[3] Fla. Stat. § 736.0401(1).

[4] Fla. Stat. § 736.0403

[5] Fla. Stat. § 732.502(1).

[6] Fla. Stat. § 736.0505(1)(a).

[7] Fla. Stat. § 736.0502.