Revocable Trusts Creation & Maintenance
Many people think of trusts as something a wealthy person uses to provide for young adult children. However, trusts serve many important purposes beyond those portrayed in novels and on television. Elite Estate Planning & Florida law provides for the creation of many different types of trusts, to achieve many different goals.
Revocable Living Trust
Living trusts are often used in place of a Last Will & Testament, as a means of transferring assets to beneficiaries when the grantor passes away. The grantor retains the use and benefit of trust assets during their lifetime and can revoke the trust or remove assets from it at any time. However, when the grantor passes away, the beneficial interest shifts to listed beneficiaries.
If the grantor was acting as a trustee, he or she is replaced by a designated successor trustee. It is the trustee’s responsibility to manage the trust assets for the benefit of the designated beneficiaries—typically the grantor’s spouse, children, and grandchildren.
Some key benefits of a revocable living trust include:
- A properly funded trust avoids probate.
- A living trust offers greater privacy than passing property through a will and probate.
- A living trust is more efficient than the probate process, which can take a year or more.
- A living trust is typically less expensive to administer than probate.
Many people also choose a living trust because it offers greater control over how the assets are used and distributed. For example, the grantor can specify that the trustee may make distributions only for specific purposes or may schedule periodic or landmark-related distributions. And, while a will is exclusively geared toward passing property after your death, a living trust can have benefits in your lifetime.
An experienced estate planning attorney can explain the differences between using a will and using a living trust and help determine which is the right path for you.
Bloodline Trust (“Dynasty Trust”)
A dynasty trust can be considered a deluxe version of a standard living trust. A dynasty trust is a trust created to benefit not just your immediate heirs, but future generations of your family.
In essence, “bulletproof” sub-trusts are created within your living trust to protect the assets left for your beneficiaries from future creditors, predators, lawsuits, and divorces.
A well-structured and well-managed dynasty trust can provide income for beneficiaries across generations without diminishing the value of the trust. In fact, the trust assets may grow over time.
One of the key reasons people employ dynasty trusts is “bloodline protection”—a means of keeping assets in the family from generation to generation. When assets pass through more traditional means, such as a will, the estate may become fragmented over time, with pieces being routed out of the family.
For example, imagine that a couple’s estate is devised in equal shares to their three sons. Two of those sons marry and have children. But, the third marries and then is killed in an automobile accident before having children of his own. Chances are that he will leave the bulk of his estate to his wife, who may then remarry, have children, and pass her first husband’s 1/3 of the estate down through generations of her family. Or, one child may divorce and lose a significant portion of the inherited estate to his former spouse.
A dynasty trust can protect against this type of fragmentation, keeping the core assets in one place and legally dictating who will benefit from those assets for many years to come.
Qualified Domestic Trust (QDOT)
A qualified domestic trust (QDOT) is created for the specific purpose of allowing a spouse who is not a U.S. citizen to claim the unlimited marital deduction for estate tax purposes.
If both spouses are U.S. citizens, the decedent spouse may leave an unlimited amount of money and property to the surviving spouse free of the federal estate tax. This unlimited marital deduction does not apply to a surviving spouse who is not a citizen.
While this type of trust allows a non-citizen spouse to enjoy a tax deferment benefit similar to that granted to surviving spouses who are U.S. citizens, they also create some limitations. For example, the surviving spouse may receive income from the trust but generally cannot access the principal of the trust except under specific circumstances, such as hardship or emergency. Trust assets also cannot be transferred outside of the U.S. Additionally, at least one trustee must be either a U.S. citizen or a U.S. corporation.
An estate planning lawyer who is knowledgeable about qualified domestic trusts can help you determine whether this type of trust would be a beneficial addition to your estate plan.
IRA Beneficiary Trust
For those who have significant assets in an IRA, an IRA Beneficiary Trust can be a great tool to help beneficiaries preserve, protect and grow your hard-earned investment tax-deferred over the life expectancy of each beneficiary. Most people list a spouse and children as beneficiaries of their IRA. However, a child who may have spending and judgment issues could easily cash out the IRA and spend the money frivolously. Not only would that child lose the benefit of tax-deferred growth over his or her lifetime, but he or she would also have to pay income tax on all of the money withdrawn in the year it was taken.
Alternatively, if you pass your IRA to your beneficiaries through an IRA Beneficiary Trust, you can dictate who is in control for each and every beneficiary; and, furthermore, how much and when a beneficiary can withdraw money. Additionally, you are protecting the IRA assets from creditors, predators, lawsuits, and divorce. An IRA Beneficiary Trust can also preserve the IRA assets for future generations by keeping the asset in your bloodline.
If you’re concerned about what will happen to the four-legged members of your family if you should die or become incapacitated, you can provide for their care with a pet trust. A pet trust may be established for the benefit of one or more animals, so long as the animals are all alive at the time the trust is created. The trust terminates upon the death of the last-named animal.