Wills and Trusts FAQ’s

A trust is a intangible legal entity that is an agreement between the grantor and the trustee, naming the trustee to control the grantor’s property, or some of it, for the benefit of a beneficiary. The beneficiaries hold “equitable title” to those assets. The trust agreement defines the trustee’s powers and duties. Trusts of various types are frequently used in estate planning to achieve tax, financial, and personal objectives.

The Trustee of the Trust is the person charged with keeping the assets safe, invested properly, and finally distributed to the Beneficiary at the proper time. The Grantor can pretty much decide how the money must be kept (in interest bearing accounts, in real estate, or only in government insured FDIC accounts, etc.), and when it may be distributed (when the beneficiary is 18 years old; or one half when the beneficiary turns 18 and the other one half when the beneficiary turns 21, etc.). The Grantor of the Trust can also be the Trustee of the Trust, if the Grantor decides to set the Trust up in such a manner (e.g., Grantor sets him/herself up to be the Trustee of a Trust for his/her child).

Any person who owns assets, including real property AND wants to avoid the expense of a probate administration, should consider creating a Trust. A trust can also be an excellent tax-avoidance tool. Many people with substantial assets or minor children can benefit from a trust.

If a decedent’s estate is worth more than $1,500,000 in year 2004, it is subject to estate taxes. For a married couple, a properly drawn A/B Trust results in the first $3,000,000 of their assets being protected, instead of only $1,500,000. Thus, the estate taxes would not have to be paid and could instead go to the heirs estate tax free.

If you own real estate in several states, placing some of the real estate in a Trust prior to death may avoid unnecessary probate expenses.

Trusts can be included in your will or prepared separately.

Many people with young children also use a trust to ensure that their minor children will be cared for if they die. Should something happen to you and you do not have a trust for your minor children then state laws require that a guardianship for the benefit of the minors be established. A guardianship requires most or all actions to have court approval and corresponding attorney’s fees and costs can be expensive. Another disadvantage of a guardianship is that a court will generally not allow investment of funds into anything but a FDIC protected type of investment (i.e., an insured bank account offering 2 – 3% return). Mutual funds or other investment options are generally off limits.

However, with a trust, you can invest in high-yield options so your child could receive substantially more. Also, a trust allows such funds to be held by a Trustee and disbursed as needed by the minor for education or other needs, giving the Trustee much more control over how the funds are disbursed to the child.

Because trusts can be quite complicated, it is in your best interest to contact an attorney who regularly practices in the fields of wills, trusts and estate planning to assure your plan goes as smoothly as possible.

A will and a trust are used for different purposes. They are similar in that they both allow you to designate exactly how you want your assets and other personal property to be distributed to your beneficiaries after you die. The major difference between a will and a trust is that a will does not avoid a probate proceeding and a trust does avoid probate. A trust is administered outside of the probate court after you die.

Some people prepare a trust to avoid paying estate taxes. Generally, you would not need to prepare a trust to avoid probating your Will if you net assets amount to less than $1,500,000 in year 2004. In this case, a Will would serve the same purpose as a trust because the federal tax laws do not tax a person’s asset for the first $1,500,000 after they die.

The advantages of having a trust are: (1) the grantor may have control over the property, including after the grantor’s death; (2) the grantor may restrict access to the property; (3) the trust provides professional management/investment; (4) the trust provides for responsibility and accountability; (5) the trust may remove the property from estate taxation; (6) the trust may qualify for tax benefits; (7) the trust gives the grantor some flexibility, discretion, and control; (8) the trust provides for asset protection; the trust may also allow for multiple state tax planning; (9) and the trust gives the family the financial privacy that is not available in a will, which when probated becomes public record.

Yes. Your will serves as a back-up for assets that you either don’t or are not able to transfer to your Living Trust. Any asset not transferred to the trust will not pass under the terms of the trust document. However, in your will, you can include a clause that names either your trust or someone to inherit assets that you haven’t left to anyone else.

If you don’t have a will, any asset that isn’t transferred by your Living Trust will go to your relatives in an order determined by the Florida law of intestate succession. Thus, the law may not distribute your assets in the way you would have chosen. Creating a Will in addition to your Trust can assure you that your assets that are not covered under your Trust are distributed according to your wishes.

First, you will need to provide your family details, such as your current marital status, the names and ages of your children and the other beneficiaries of your estate, if any. These are the persons or organizations who will inherit your estate. If you plan to leave property to your children, you will need to decide at what ages the children will actually receive the property they inherit. You also must decide the shares of your estate that each beneficiary will receive.

If you have minor children, then you must choose a guardian. This is the person who will take care of your children in case you and your spouse die before your children become adults. The guardian will raise your children and manage their money.

Lastly, you must appoint a trustee or co-trustees who will make discretionary distributions of income and principal to your loved ones.

A-B Trusts: The two “sub-trusts” created when a person dies, the “A” Trust, often referred to as the “Marital Trust”, will be maintained for the benefit of the surviving spouse. The “B” Trust will contain assets of a value equal to the deceased spouse’s remaining estate tax exclusion amount. The B-Trust, also referred to as the “By-Pass Trust”, “Credit Shelter Trust” or “Family Trust”, will also be held for the benefit of the surviving spouse during his or her lifetime, but upon the death of the surviving spouse, the trust assets will pass to the children (or other beneficiaries) without any additional estate tax, irrespective of the value of the B-Trust at that point.

Revocable Living Trust: A trust established by an individual or a married couple that becomes effective immediately upon establishment while the Trustor (also referred to as Settlor or Grantor) is still alive (thus “Living”), remains revocable and amendable during the lifetime of the Trustor (thus “Revocable”), and is used to avoid probate; facilitate some tax planning; provide for management during periods of incapacity without need for a guardianship or conservatorship; address family circumstances; and provide for ultimate distribution of the estate.

Irrevocable Trust: A trust that cannot be revoked, modified or amended once it has been established. Irrevocable trusts are often used in tax planning to get property “out” of an individual’s estate so that it will not be subject to estate tax upon his or her death.

Charitable Trust: A trust created for the purpose of performing charity or providing social benefits, and achieve income and estate tax savings for the person who created the trust. Unlike most trusts, a charitable trust does not require definite beneficiaries and may exist in perpetuity.

Crummey Trust: An irrevocable trust established to qualify contributions for the annual federal gift tax exclusion (currently $11,000) for gifts of a present interest. So-called because the trust contains “Crummey Powers,” enabling a beneficiary to withdraw assets contributed to the trust for a limited period of time.

Gift Trust: An irrevocable trust established to act as the repository of gifts to its beneficiaries, drafted such that the gifts to the trust will be excluded from the donor’s taxable estate at death.

Insurance Trust: An irrevocable trust established to own life insurance on a person, so designed to exclude the proceeds of the policy – the death benefit – from the insured person’s taxable estate at death.

Qualified Personal Interest Trust (QPRT): An irrevocable trust established to hold title to one’s residence. The owner transfers ownership of the house to the trust, retaining the right to reside in the home for a period of years.

Qualified Domestic Trust (QDOT): A marital trust used for the benefit of a non-U.S. citizen spouse containing special provisions specified by the Internal Revenue Code such that transfers to the QDOT qualify for the estate tax marital deduction.

Special Needs Trust/Supplemental Needs Trust: A trust established for a disabled person to provide supplemental support without disqualifying the beneficiary from eligibility for governmental assistance programs. They may be created with the proceeds from a judgment or settlement or by a loved one with concerns for a disabled beneficiary.

Spendthrift Trust: A trust that is created for a beneficiary who is paid income therefrom and that cannot be reached by creditors to satisfy the beneficiary’s debts.

With the help of The Law Offices of Barbara Buxton, P.A., you can create the trust or trusts that will benefit and protect you and your loved ones.

A revocable trust is where the Grantor can change the terms of the trust or even revoke the trust altogether and take back all of the assets in the trust. An irrevocable trust is where the terms of the trust cannot be changed (i.e., the beneficiary cannot be changed), and the assets placed in that Trust cannot be withdrawn by the Grantor.

A trust in which the income is retained and not paid out to beneficiaries until certain conditions are met. For example, if you create a trust for your child’s benefit that stipulates that he/she will not have access to the assets until he/she turns 21 or graduates from college.

A condensed version of a Living Trust document which leaves out details of what is in the Trust and the identity of the beneficiaries. A Certificate of Trust is normally used to prove to a financial organization or other institution that you have established a valid Living Trust, without revealing specifics that you want to keep private.

The person you appoint as your trustee must be someone you trust implicitly and when the person becomes a trustee, this individual has a fiduciary relationship with you and the beneficiaries of the trust. In other words, the trustee is held to the highest standard of conduct. Many state laws frequently mandate high standards of responsibility that cannot be modified by the trust creator.

A trust governs the disposition of all of your property that you have conveyed into the trust. Thus, we always have our inter vivos trust clients execute a “pour-over” will to sweep into the trust any property that is not in the trust or that does not pass by contract. A will governs the disposition of all of your property that you own that does not pass pursuant to the terms of a trust or that does not pass by contract.

Property that frequently passes by contract, typically pursuant to a beneficiary designation, includes life insurance, employee benefits and some bank and brokerage accounts. You should be sure that your beneficiary designations correctly express how you want that property to pass. If your will or trust contains sophisticated provisions, we can provide you with beneficiary designations that will coordinate the passing of all of your property under one, integrated plan.

Only an attorney who regularly practices in the fields of wills, trusts and estate planning is able to guide you through the critical decisions that are necessary to ensure that your assets are distributed as you wish and to provide you with sound legal advice as you put your trust and estate plan into place.

Barbara Buxton, Esquire has a Master of Laws in Estate Planning degree (LL.M.) which provides advanced training and experience in the complexities that may be faced in creating and implementing an estate plan. Please visit our estate planning and trusts page or contact The Law Offices of Barbara Buxton, P.A. for more information about our estate planning services.

Often the expense incurred in retaining an attorney to prepare and help you put an estate plan into place is worth hundreds of times what you and your family would pay with no planning or poor planning. It would also avoid the financial and emotional nightmares that can occur with a poorly drafted (or improper) plan.