“I already have a will, why do I need a trust?” This is a common question for many people. A trust can be a powerful tool to use to avoid probate, which include the expense and delay following your death. Trusts also provide the privacy not available by probating your will in the courts, as your will must be filed with the clerk of court and is a public record. Finally, a trust can be effective the day you sign the document, unlike a will that does not take effect until death and upon court order.
For the purpose of estate planning, here are some important reasons to create a trust:
- avoid probate;
- minimize or avoid taxes;
- provide for minors or special needs individuals;
- provide standards for distributions of your assets over a period of time or for a special purpose;
- asset protection from creditors;
- provide for both charities and beneficiaries at same time; and
- help qualify a Medicaid benefits.
The “grantor” is the creator of the trust and who “funds” or transfers assets into it. A “trustee” is the one who manages or administers the trust according to the terms. A grantor can also be the trustee. A “beneficiary” is one who will benefit from the trust.
Florida law recognizes several types of trusts to serve several purposes. There are revocable, irrevocable and even trusts in equity (that is, out of fairness) that may not be written trusts.
Revocable trusts allow the grantor to revoke, change the trust, add or withdraw assets from the trust or to terminate the trust. It is common to remove or replace trustees.
Unlike a revocable trust, an irrevocable trust cannot be changed once executed, with some narrow exceptions under the law, such as with a court order. The most common purpose of an irrevocable trust’s purpose is to avoid both probate and taxes. The assets of this trust can be used to pay taxes or pay the family because of the tax bill. There are several types of trusts using charities, which are created for minimize or avoid tax and for accomplish charitable purposes. Charitable trusts are especially useful when a large portion of assets consists of highly appreciated stock or a very large retirement plan.