As promised, Principal Law delves deeper into the mystery of legal arrangements you must consider if you are planning your estate. First, however, let us remind you that research on the internet is no substitute for a consultation with a lawyer. Legal articles can only introduce you to the concepts behind the law. To obtain truly detailed information, you must find an attorney you trust and talk with him or her.
Gifted attorneys with experience and expertise can bring provide you with an understanding of the law relevant to your fiscal standing and your family situation.
The Mystery of the Elephant in the Revocable Trust
Florida Revocable Trust Laws Can Seem Very Complicated
There is a story about an old man who said he would have no problem eating an elephant. We ask you to imagine that understanding the Revocable Trust is somewhat comparable to eating an elephant. There is a huge amount of material to absorb either way.
To understand the massive legalities of a Revocable Trust and all the quirks of Florida law seems a mammoth task. Indeed, it might seem as impossible as the man who said he would eat the elephant. His friends asked him how he planned to eat the enormous creature. And the old man winked and said, “one bite at a time.”
Thus it is that we will provide you with valuable information about the revocable trust in small segments. In that way, you can digest it “one bite at a time.”
Mystery Number One: What is a Revocable Trust?
Many people think of the revocable trust as “the living trust,” which explains why they confuse it with “the living will.” This was our topic in the previous blog. (Just remember, a living will refers to the state of your health and living trusts refer to the state of your wealth.)
Thus, according to the Florida Bar, “The revocable, or “living,” trust is often promoted as a means of avoiding probate and saving taxes at death and is governed by Chapter 736, Florida Statutes.”
Likewise, the lawmakers advise us that “The revocable trust has certain advantages over a traditional will. However, there are many factors to consider before you decide if a revocable trust is best suited to your overall estate plan.”
No Mystery Here: Basics of the Revocable Trust
Put simply, you create a revocable trust as a document called a trust agreement. The agreement will allow someone to manage your assets while you live. And it will allow someone to distribute them when you die. Actually, it takes all the mystery out or your final arrangements.
As we have explained previously, the person who creates a trust is called the “grantor” or “settlor.” The person responsible for the management of the trust assets is the “trustee.” But who is a trustee? You can serve as trustee, or you may appoint another person. You are also permitted to choose a bank or trust company to serve as your trustee.
The Mystery of the Mind Changing Nature of Life
” I Changed My Mind – Can I Change My Trustee?
What if you change your mind about the trustee or the terms of the trust? You can always change your mind about who should be a beneficiary or trustee. The very essence of the word “Revocable” means that if you develop any misgivings about the trust, then you can modify it. Of course, there is a legal document for that contingency, entitled a trust amendment.
In fact, you can choose to either revoke the entire agreement. Or you can “change the entire contents through a trust amendment and restatement.”
The Challenge of the Trust: Funding
At Principal Law, we want you to be aware of this condition. You must transfer your assets, bank accounts, real estate and investments to the trust. This is a legal process termed “funding.” And it requires changing your assets to the ownership of the trust.
Remember that any Assets that are not properly transferred to the trust could get caught up in probate after your death.
There are situations in which some assets should not be given over to the trust because of taxation laws. You should consult with your attorney, tax advisor and investment advisor to determine if your assets are appropriate for trust ownership.
Funding and Property Transfers
A trust must have funding to endure. This is not a mystery, but it is a challenge for some people. Funding the trust is necessary so that it can fulfill its objectives. Details might cover such aspects of your wealth as:
- The transfer of the legal title from the grantor into the name of the trust.
- Perhaps you will have to record a new deed if there is real estate involved.
- Rename your checking, savings, and investment portfolio accounts.
- Do not forget to transfer life insurance policies, stocks, and bonds.
- If automobiles are involved, you will need to obtain new titles for them.
- So that all your wishes on paper are identical, be sure you designate new beneficiaries in writing with the proper forms.
Special Considerations When Planning your Revocable Trust:
We caution you about certain types of property, which will require special attention when you create your trust.
- Incentive stock options,
- Section 1244 stock,
- Be aware that Transfers to the trust are not considered gifts, so the grantor doesn’t need to file a gift tax return.
- Warning: Some states will reassess the value of a home for property tax purposes when it is transferred to a trust.
- Some states will disallow income tax deductions related to the home if it is owned by a trust.
- Very Special Warning: Be sure you know your bank’s policy on transferring CDs to a Trust. It is true that some banks will penalize you if you transfer a CD to a trust. In their eyes, the transfer is clearly an early withdrawal.
Do I Have To Transfer All My Money in a Revocable Trust?
Our Terrific Take-Away
Yes, the process of funding your trust can be very complex. However, it is no mystery to the experts at Principal Law. At Principal Law, we help you understand the legal aspects of your estate planning journey-one bite at a time.
In our next blog, we’ll bring you information on the deepest advantages and disadvantages of creating a revocable trust in our Part 2 coverage of this topic.
Until then, Principal Law thanks you for visiting us and reminds you that Mother’s Day is just around the corner.
