What Are The Different Types Of Trusts In Florida?
Trusts can be an essential element of any estate plan. However, there are many Trusts to choose from and it can be difficult to determine which one is best for you. Below is a high-level review of four different types of Trusts that can be essential to estate planning.
Let’s start with the basics – What is a Trust?
A Trust is a fiduciary relationship between the Trustor (the person who creates the document; the Trustor is also called the “Grantor,” “Settlor,” or “Trustmaker”), the Trustee (the person responsible for holding title to the Trustor’s assets and managing the Trust) and the beneficiary (the person(s) for whom the Trust was created). Not every person needs a Trust as part of their estate plans, but trusts can be very useful tools in disability planning, probate avoidance, asset protection, and tax planning.
A Living Trust could also be called an “inter vivos” trust or a “revocable” trust. A Living Trust is the most common type of Trust because it is a Trust created by the Trustor while also serving as the Trustee and the beneficiary. Because this trust is revocable, the primary purpose of this trust is probate avoidance and disability planning (although a more complex living trust could provide tax and asset planning to beneficiaries beyond the lifetime of the Trustor). Once the Trustor dies, the assets pass to the beneficiaries pursuant to the terms of the Trust.
As its name implies, an Irrevocable Trust cannot be altered and changed once it is created and funded. There are dozens of types of irrevocable trusts, but the primary purposes for establishing an irrevocable trust are: creditor protection, gift/estate tax planning, and Medicaid planning. Because irrevocable trusts cannot be altered or revised after its creation, many clients hesitate to commit to these types of trusts. Moreover, the Trustor often cannot control the assets held in the irrevocable trust. Because of the loss of control over the assets held in irrevocable trusts, many families choose not to commit to an irrevocable trust unless absolutely necessary.
If you want a non-profit organization or charity to receive some of your assets, you can create a Charitable Trust. This type of Trust is created during the Trustor’s lifetime (or after death) and is intended to benefit both a charity and beneficiaries at the same time.
A Charitable Trust allows the Trustor to reduce estate taxes or avoid them altogether. This type of Trust is best for families who are charitably motivated or would like to reduce their estate tax liability.
Many families have, or need to obtain, a life insurance policy in order to supplant wealth or provide for loved ones after their death. The life insurance trust would purchase the policy on the insured’s life so that the insurance policy death benefit is out of the insured’s taxable estate. This allows wealth to transfer to the next generation without getting taxed. A life insurance trust is also an irrevocable trust so the Trustor would not be able to make changes to the beneficiaries after its created.
Consult with a St. Petersburg Estate Planning Attorney
Although trusts are a common estate planning tool, it may be difficult to decipher which type of trust is best for you. If you’d like to learn more about trusts, schedule a consultation with our estate planning attorneys at Legacy Protection Lawyers, LLP by calling 727-471-5868.