What is a Trust?
The Florida Trust Code governs trusts in the State of Florida. Florida’s Trust Code is found in Florida Statute Ch. 736. The common law of trusts and principles of equity supplement the Code, except to the extent modified by the Code or another law of the State of Florida. A Trust Instrument means an instrument (document) executed by a settlor (synonymous with the word grantor) that contains terms of the trust, including any amendments to the trust. The terms of the trust are the manifestation of the settlor’s intent regarding a trust’s provisions as expressed in the trust instrument or as may be established by other evidence that would be admissible in a judicial proceeding.
A “trust” is a legal entity that operates as revocable or irrevocable during the grantor’s lifetime. Revocable as applied to a trust means that the trust may be revoked by the settlor without the consent of the trustee or a person holding an adverse interest. The term adverse interest is defined in the Internal Revenue Code.
An irrevocable trust is a trust that cannot be revoked or amended unless by judicial modification or in the situation where the settlor surrenders privileges or rights to the named beneficiary/s. Unless the terms of the trust expressly provide that the trust is irrevocable, the settler may evoke
or amend the trust. However, this rule differs depending on when the trust was executed. See Fla. Stat. 736.0602.
Each type of trust has a different tax bracket as governed by the Federal Tax Code. For example, a revocable trust operates under the grantor’s social security number and is taxed as “one and the same” as the Grantor.
An irrevocable trust created in someone’s lifetime to hold assets is taxed under its own tax identification number. These trusts do not operate under the grantor’s social security number and do not share the grantor’s tax bracket. Rather, these trusts are taxed as legal entities similar to probate estates having a tax bracket that ranges from 24-37%. With the 37% bracket coming into play in 2020 for trusts having a base taxable income of $12,950.00.
In short, trusts are complex entities that typically require tax consulting and the advice of counsel.
Interestingly, many new Florida residents believe that their primary Florida residence used as their homestead should be placed in a trust. However, before anyone places his or her homestead real property in trust, he or she should consult with an attorney. Firstly, it may not be a valid devise due to Florida’s unique constitutional protection afforded to homestead real property. Secondly, just naming real property in a trust is not sufficient. Real property is controlled by proper and validly executed deeds. If a proper and valid deed is not executed transferring one’s
homestead property to the Trustee of the Trust, then delivered and recorded, the trust may not be funded. And in that case, the particular parcel of real property is not held in the trust. Further, themortgage holder may have restrictions and depending on when you move your real property to a trust, it could be reassessed by the property appraiser. Lastly, there are other provisions in the Florida Statutes that govern land trusts. For example, the Florida Land Trust Act is found in Fla. Stat. § 689.071 and is distinct from trusts governed under Fla. Stat. § 736. Understanding the
different types of trusts in relation to what you are attempting to accomplish requires due diligence.
Trusts also have formal execution requirements if the instrument contains dispositive provisions similar to a last will and testament—meaning the trust directs how the trust assets are to be disbursed upon the death of the grantor.
In a nutshell, creating and funding a valid Florida trust requires a variety of considerations. If you are interested in creating a trust or if you are a named distribute or beneficiary of a trust, consulting with an attorney is advised.
Preserving the grantor’s intent and maximizing distributions in a timely and efficient manner are important considerations. Beneficiaries of trusts are authorized under Florida’s Trust Code to receive a complete copy of the Trust Instrument and accountings upon the death of a grantor.
Knowing your rights up front can protect your interests and save you thousands of dollars in the long run.
Call today for a free consultation! Our office accepts as clients both individual beneficiaries and non-profit corporate beneficiaries. We further provide full estate planning services to include the creation of a variety of trusts—from special needs and spendthrift trusts to land trusts, revocable living trusts, and irrevocable trusts, as well other instruments well-suited for your particular goals and circumstances.