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Types of Trusts

Testamentary

A Testamentary trust is often used when parents want to be sure their minor children are taken care of in the event of a catastrophe. Sophisticated estate planning documents are not really necessary at this point, ie., each spouse wants to leave their estate to the other, but they know that it would be more complicated should they die leaving young children. Typically a will is prepared with a set of provisions built into it allowing for the transfer of assets into a vehicle that would be used to care for these children until they are old enough to handle their own affairs.

Revocable/Living (“Wink Wink”)

Revocable trusts are one of the best tools that estate planning attorneys use in Florida. This trust, also called a “living” trust, is a great way to avoid probate, retain privacy from the prying eyes of Courts, relatives, and creditors, and save money at your death.

A Revocable trust, or Living trust, looks, feels and acts as if your assets are owned like they are currently held. However, upon the creation and “funding” of such a trust, the assets are titled in a new entity, eliminating ownership in your individual name. Therefore, avoiding probate.

You wear several hats under this type of trust: you are

  • the “grantor” - the person granting or giving the assets to the trust;
  • the “trustee” - the person in charge of managing the assets; and
  • the “beneficiary” - the person entitled to all of the assets.

Because the trust is “revocable”, you have the right to amend any provision of the trust or terminate the trust entirely. Further, because the trust is revocable, there are no income tax effects. Your Social Security number is used in reporting all income, reportable on your individual income tax return, the Form 1040. When you receive tax forms from your various financial institutions at the end of the year, the statement will reflect “Your Name, Trustee” instead of just “Your Name”. You file the same tax return each year, and for the most part, there is very little difference once the assets are retitled into the trust.

Upon your death or disability, a successor trustee steps into your shoes. No Court intervenes. This is a person or persons that you have selected.

Irrevocable (total loss of control)

Special Needs (autistic, dementia, disabled)

Revocable trust

Each of you would establish a revocable trust. A revocable trust or revocable living trust, looks, feels and acts just like you own the assets as you do now. However, upon the creation of such a trust, your assets are transferred into a new entity, eliminating ownership in individual name (requiring probate). You wear several hats under this trust: you are

  • the “grantor” - the person granting or giving the assets to the trust;
  • the “trustee” - the person in charge of managing the assets; and
  • the “beneficiary” - the person entitled to all of the assets.

Because we would be creating two separate trusts, each of you would serve as Trustee of your trust. We discussed the possibility of having Rich Ioli act as the successor, should you be unable to serve. The beneficiaries of each trust would be both of you.

Upon the death of the first spouse (we are going to use Jeff for ease of explanation), the surviving spouse (Virginia) would have control of all of the assets in her trust, and have the “use” of the assets in the Jeff’s trust for her lifetime. When Virginia dies, the balance in her trust would be distributed to Joseph, and the balance of Jeff’s trust would be distributed to Leanne.

Because the trust is “revocable” you have the right to amend any provision of your trust or terminate your trust entirely.

Further, because the trust is revocable, there are no tax effects. Your Social Security number will be used in reporting all income. So when you receive tax forms from your various financial institutions at the end of the year, the statement will reflect “Virginia Paris, Trustee” instead of “Virginia Paris” and “Jeffrey Paris, Trustee” instead of “Jeffrey Paris”.

You will file the same tax return that you do now, and for the most part, you will see very little difference once the trust is funded with your assets. If you file a joint tax return, you will continue to do that as well.

Trustees

The trustee’s job is to manage the trust as you are managing your assets now, pay your expenses, and on your death, a successor would come in to pay all of your expenses and distribute your assets according to the provisions of the trust.

Distribution Plan:

Keep in mind as I discuss distributions below, that these events occur only after you are gone. As discussed during the meeting, upon your death, your Trustee would disburse your trust assets (tangible, real property, and intangible).