A will is is a document by which a person (the testator) regulates the rights of others over his or her property or family after death. If a person dies without a will (intestate), the decedent’s estate is distributed according to the Florida intestacy statutes. Some of the advantages of creating a will are as follows:
1) You decide who receives your property instead of the state directing who will receive your property;
2) You may name the personal representative (executor) of your will provided they are qualified under Florida law;
3) Real estate and other assets may be sold without court proceedings, if your will authorizes it;
4) You decide who bears any tax burden rather than the law making the decision; and
5) You may designate a guardian for minor children.
A trust is an arrangement whereby property (including real, tangible and intangible) is managed by one person (or persons, or organizations) for the benefit of another. A trust is created by a settlor, who entrusts some or all of his or her property to people of his choice (the trustees). The trustees hold legal title to the trust property (or trust corpus), but they are obliged to hold the property for the benefit of one or more individuals or organizations (the beneficiary), usually specified by the settlor, who hold equitable title. The trustees owe a fiduciary duty to the beneficiaries, who are the “beneficial” owners of the trust property. Trusts are either created during the settlor’s lifetime (inter vivos trusts) or upon the settlor’s death via a will (testamentary trusts). A trust can either be revocable or irrevocable.
- Revocable Trust. A trust of this kind can be amended, altered or revoked by its settlor at any time, provided the settlor is not mentally incapacitated. Revocable trusts are becoming increasingly common in the United States as a substitute for a will to minimize administrative costs associated with probate and to provide centralized administration of a person’s final affairs after death.
- Irrevocable Trust. In contrast to a revocable trust, an irrevocable trust is one in which the terms of the trust cannot be amended or revised until the terms or purposes of the trust have been completed. Although in rare cases, a court may change the terms of the trust due to unexpected changes in circumstances that make the trust uneconomical or unwieldy to administer, under normal circumstances an irrevocable trust cannot be changed by the trustee or the beneficiaries of the trust.
Some common purposes of trusts are as follows:
- Administration Expense and Tax Planning. A trust drafted for this purpose will minimize any Estate tax liability. A trust can also greatly reduce administration expenses as property in a trust will avoid probate which can be a lengthy and expensive process.
- Spendthrift Protection. Trusts may be used to protect one’s self against one’s own inability to handle money. It is not unusual for an individual to create an inter vivos trust with a corporate trustee who may then disburse funds only for causes articulated in the trust document. These are especially attractive for spendthrifts. In many cases a family member or friend has prevailed upon the spendthrift/settlor to enter into such a relationship. These trusts prevent the beneficiary from assigning or levying the income or principal of the trust to creditors.
- Asset Protection. Asset protection allows a person to divorce himself or herself personally from the assets he or she would otherwise own, with the intention that future creditors will not be able to attack that money, even though they may be able to bankrupt him or her personally. One method of asset protection is the creation of a discretionary trust, of which the settlor may be the protector and a beneficiary, but not the trustee and not the sole beneficiary. In such an arrangement the settlor may be in a position to benefit from the trust assets, without owning them, and therefore without them being available to his creditors.
- Wills and Estate Planning. Trusts frequently appear in wills. A fairly conventional will often leaves assets to the deceased’s spouse (if any), and then to the children equally. If the children are under 18, or under some other age mentioned in the will (21 and 25 are common), a trust must come into existence until the contingency age is reached. The executor of the will is (usually) the trustee, and the children are the beneficiaries. The trustee will have powers to assist the beneficiaries during their minority.
Please contact the Toney Law Firm for all your Estate Planning questions, toll free at 866-878-7817.