Living trusts (or revocable trusts) are types of trusts that allow the terms to be changed at any time.
Although that may seem like a great benefit, careful consideration is required before determining if a living trust is right for you. Let’s explain why:
What Are Trusts?
Trusts are separate legal entities created to manage an individual’s assets.
They can be used to remove liability from the trust creator and assure assets are used appropriately and by following the terms laid out in the trust document.
Assets are assigned to a trust, where a trustee manages them. The trustee is responsible for acting in the best interest of the beneficiaries, from notices and distribution to investments and accounting.
How Living Trusts Work:
Living trusts (also called revocable trusts) allow the owner to change its terms at any time.
As a trust owner, you can remove and add beneficiaries, modify the way assets are managed and adjust the terms for your estate planning.
However, there are some glaring disadvantages that should be taken into account:
The Negatives of Living Trusts:
No Creditor Protection
Due to the level of control, the law doesn’t protect living trusts from creditors. If sued, living trust assets can be ordered liquidated to satisfy any judgment.
If one of your primary estate planning goals is to protect your assets from creditors, then a living trust might not be suitable for you.
No Tax Benefits
For many people, minimizing the amount of tax on an estate is a much-desired requirement in any trust.
This is not possible in revocable living trusts.
Federal law requires anyone looking to take advantage of federal and state income tax benefits to ‘give up their right to modifications of the trust.
When a living trust creator dies, the trust assets will be applicable to federal estate taxes.
The Benefits of Living Trusts
Aside from the already mentioned freedom of terms adjustments, the benefits of revocable living trusts include:
Safeguard Your Wishes
Living trusts provide protection over any wishes and plans you have for your estate, even after your death. For example, you may want to allow your grandchildren to receive money or a car upon their 21st birthday. A living trust will allow that to happen, even after you become incapacitated or pass away.
Arguably the most significant positive of a living trust is the ability to avoid probate. Probate is lengthy, costly and can result in unhappy relatives and tense conflicts. Your beneficiaries will receive their share of the estate quickly and without probate stress.
Can Hold Qualified Assets
Revocable living trusts can also hold qualified assets. Qualified accounts such as 401(k)s and IRAs are not suitable for irrevocable trusts.
Living trusts also maintain a level of privacy. Wills, for example, are public documents that can reveal every detail of your estate during probate. Living trusts make it far more difficult to see private information and are often highly effective at preventing challenges.
Why Not an Irrevocable Living Trust?
Alternatively, you should consider an irrevocable living trust.
Irrevocable trusts are set in stone from the moment the trust document is signed. Only under extremely rare conditions can changes be made.
The creator effectively removes all ownership rights and control of the assets that they place into the trust.
The main reason an irrevocable living trust might be right for you is taxes.
Irrevocable trusts remove assets from the creator’s estate, so they can no longer be subject to federal estate taxes.
Irrevocable trusts are also highly effective creditor protectors, removing assets from the legal judgments they may have had if owned by an individual.
Why Might You Need a Revocable Living Trust?
Revocable living trusts aren’t for everyone. But there are common instances where it is often suitable.
When You Own Lots of Assets
If you have a lot of assets, own multiple properties or have a complicated, extended family, then the freedom of a revocable living trust might be suitable. You will at any moment be able to adjust your vision for your assets as you please.
You Value Control
For some people, control is more important than tax benefits. If you want assurance that your visions and plans can be followed through after your death, then a revocable living trust might be right for you.
If, for example, you want to be able to add grandchildren, new friends, or adjust the way the assets will be shared, then a living trust will allow it until the day you die.
Concerns Over Incapacitation
Irrevocable living trusts are complicated and make estate planning difficult. If your main goal is to plan for incapacity, then a revocable living trust may be enough.
Financial power of attorney, proxy and health care directives can all be factored in, protecting your future and your family if you need medical support.
You Want More Protection Than a Will
Revocable living trusts can serve a similar purpose to a will, in terms of planning, but without the risk of privacy and challenges.
Wills are often challenged during the probate process, with the document and estate available to the public. With a revocable living trust, you can ensure your loved ones get their share of your wealth as intended.
Contact a Living Trust Attorney in Florida
If you want to set up a trust in Florida but are unsure on what route is best, or how to get started, then contact our Florida living trust attorneys today.
With strong experience and expertise, we can analyze your goals and circumstances before providing you with valuable guidance.
Battaglia, Ross, Dicus & McQuaid, P.A. is a U.S. News and World Reports Tier 1 law firm in Florida, specializing in Estate Planning & Probate since 1958. With award-winning experienced attorneys, they can help you and your family retain its wealth for generations to come.
Schedule a free consultation today to get started.