The ABCs of Living Trusts
What is a living trust?
A living trust is a contract between the Grantor (the person who makes the trust agreement) and the trustee (the person in charge of carrying out the terms of the trust).
What is a Grantor?
A Grantor is the maker of the living trust. It is the Grantor’s assets which go into the trust. There may be one or more grantors, as in the case of husband and wife, both would be deemed “Grantors”.
What is a Trustee?
A Trustee is the administrator of the Trust. The Trustee carries out the purpose of the Trust. A Grantor can be Trustee during his/her lifetime, and then when the Grantor is no longer competent, or upon his/her death, a successor Trustee (who is named in the Trust) steps in to carry out the wishes of the Grantor and effectuates the terms of the Trust.
Is a living trust revocable or irrevocable?
A trust can be either revocable or irrevocable. The most common type of trust used in estate planning is the revocable trust. This means the Grantor can later change, terminate or modify the terms of the trust.
An irrevocable trust may not be changed or revoked except in very limited circumstances.
Is the living trust like a will?
The living trust is like a will in that it provides who gets what, when and how after the death of the Grantor, but unlike a will, the trust assets do not need to go through court probate. This enables the Trustee to transfer assets to the beneficiaries more quickly and without court involvement.
Do I still need a will if I have a trust?
A “pour over” will is usually used in conjunction with a living trust. The pour over will simply provide that if at the Grantor’s death any assets were not titled in the name of the trust, the Trustee can have them retitled in the name of the Trust. These assets would be given to such beneficiaries as named as beneficiaries in the Trust Agreement.
Once the Trust document is created is anything else required to activate the Trust?
It is crucial that all of the Grantor’s assets be retitled in the name of the trust. For example, if John Doe has a checking account. It should be retitled in the name of “John Doe Living Trust”.
If the asset is not retitled into the name of the trust, then it is not in the trust at all. This defeats the entire purpose of having a Living Trust.
How do I decide who to name as successor Trustee?
If you are married, it would normally be your spouse. If you are widowed or single, it would be a trusted family member or friend. In high asset, financially complex and/or family situations with a high risk of internal strife, it may be preferable to have a corporation or third party professional to act as Trustee. Corporate or professional trustees charge for their services.
How do I know my successor Trustee will carry out my wishes?
The Florida Trust Code (FTC) sets forth the requirements that a Trustee must follow, which include:
- Act in good faith
- Be loyal to the beneficiaries
- Be impartial as to beneficiaries
- Be prudent
- Keep expenses reasonable in line with the purpose of the trust
- Use special skills which Trustee may be possess
- Protect and control Trust assets
- Not commingle trust assets with trustee’s own or other assets
- Be a good record keeper
- Determine marketability of title and obtain title insurance when necessary
- Defend and enforce claims for and against the trust
- Take steps necessary to seek recover of losses or damages against former trustees
- Account to the beneficiaries.
What are the advantages of a Living Trust over a simple will?
There are many advantages of a Living Trust, which include:
- If the Grantor becomes incapacitated, his/her chosen Trustee (rather than an unknown Guardian chosen by the court) can step in and handle the Grantor’s financial affairs when the Grantor cannot.
- The need for probate can be eliminated if all assets are placed in the ownership of the Trust.
- Grantor retains greater control over the assets.
- Planning can be made for a disabled heir so that government benefits are not lost.
- Grantor’s out of state real estate holdings can be placed in the Trust which allows that out of state real estate to be distributed through the Trust rather than having to retain legal counsel and probate that property in another state.
- Unlike a joint account, creditors of the Trustee cannot attach or garnish the Trust assets. With a joint bank account, the joint account holders’ creditors can confiscate the entire account balance.
- Much less litigation involving Trusts as compared with Probate.
- Trusts provide privacy. With probate, the size and disposition of the estate is public record. With a trust only the beneficiaries and trustees are entitled to accountings and notices as to trust provisions.
- Trusts may be used to lessen taxation in very large estates.