REVOCABLE LIVING TRUSTS

To the surprise of many Floridians, each person in the State of Florida has an estate plan whether they have created on one their own or not. How is this possible? The State of Florida has an estate plan in place, called the laws of intestacy, for any person who passes away without a Last Will and Testament or a Trust. However, this estate plan typically involves probate, which is the legal process of distributing a deceased individual’s assets.

Probate often results in a long and drawn out judicial process which can be quite expensive. A trust, when created properly, can avoid the probate process as it allows the transfer of assets without the necessity of probate. This is how a revocable living trust can be beneficial to a person’s estate plan. A living trust is a trust which has been created during your lifetime, as opposed to a testamentary trust, which is a trust created upon your passing by means of your Last Will and Testament.

When creating a trust, there are three roles involved: trustor, trustee, and beneficiary. The trustor (sometimes referred to as the “settlor”) is the creator of the trust. The trustee is the individual who manages the trust and holds title to all the trust assets for the benefit of the third party: the beneficiary. The beneficiaries are the individuals named who will receive the trust assets, either during the life of the trustor or upon the death of the trustor. During the trustor’s lifetime, the trustor is all three parties of their revocable living trust: the trustor, the trustee, and the beneficiary. As the trustee of your own living trust, you have complete control over all your assets that are being held in trust. Further, as trustee, you hold legal title to all the trust assets for your benefit during your life and the benefit of your heirs, who will become the beneficiaries of your trust upon your passing.

A revocable trust is a type of trust which can be amended or revoked during your lifetime. This allows you to have complete control of your assets during your lifetime. It becomes irrevocable and unamendable upon your passing or incapacity. At this time, the person who you name as the successor trustee will step in to manage the trust, either for your benefit if you are incapacitated or to distribute the trust assets to your beneficiaries upon your passing.

A revocable trust, if created and managed properly, will avoid probate. However, your trust assets will also be subject to federal estate taxes if your estate exceeds the inheritance take threshold. Taxation is no different during your lifetime from any of the other assets you own. Contacting a Florida revocable living trust attorney will allow you to receive all the help you will need to manage the legalities of creating and managing your revocable living trust and set your estate plan up for success.

Advantages of a Revocable Living Trust

As stated above, probate can be a time-consuming and expensive process (see also PROBATE AND ESTATE ADMINISTRATION. A living trust can offer an alternative to the probate process and allow you to set up a speedy and less costly transfer of assets upon your passing. However, if your estate is valued at less than $75,000.00, Florida’s Uniform Probate Code allows for a streamlined probate process, which is called Summary Probate Administration. This means that putting assets into a trust when your aggregate assets are valued at less than $75,000.00 may not be a very useful option. However, the State of Florida does not allow an individual to initiate a probate administration without the assistance of an attorney, so even a Summary Probate Administration will take time and will cost money in legal fees which can be avoided by establishing a revocable living trust. Lastly, for estates that are valued at more than $75,000.00, a trust can be an invaluable tool in preventing your assets from being tied up in a lengthy and costly probate process. Additionally, unlike a Last Will and Testament, trusts are entirely private and are not available to the public.

Length of Time

One of the most crucial advantages of a revocable living trust is avoiding the probate process due to the length of time that probate takes. The average length of probate varies greatly and is determined by many different factors, such as the type of probate administration required and the complexity of the estate. Our law firm has experienced an average length of probate taking anywhere from eight to eighteen months. However, our law firm anticipates a massive increase in this average time frame in the next five to fifteen years because of one thing: The Baby Boomers. The “Baby Boomers” are the individuals comprising of the generation born between 1946 to 1964 and are almost three times the size of the two generations before them (the “Silent Generation” and the “Greatest Generation”/“WWII Generation”). The Baby Boomer population peaked at 78 million people, whereas the Silent Generation and the Greatest Generation populations peaked at a combined 28 million people (for further statistical data relating to the different generations, see also “American Generation Fast Facts“). The oldest Baby Boomers are now approaching their mid-seventies.

Additionally, a study released by Merrill Lynch and Age Wave in January 2019 stated that close to half of people aged fifty-five and older (which equates to roughly 45%) do not have a Last Will and Testament. This means that even fewer individuals in this age group have an estate plan with probate-avoidance in mind. Since the Baby Boomer generation is two and a half times the size of the previous generation, our law firm is anticipating what we have dubbed “the probate tsunami,” since the probate courts in the State of Florida (which is a thriving retirement destination) will be inundated with probate cases within the next five, ten, to fifteen years (see “Actuarial Life Table” for aged-based life expectancy). Since the Florida probate courts will be suddenly flooded with the amount of probate cases, the dockets will grow longer and the length of time that a probate will take to administer will also increase. Therefore, having an estate plan created by an attorney with probate avoidance as a key concern is paramount in ensuring that your assets transfer to your beneficiaries in a smooth and timely manner, without the need for a probate.

Avoiding Unintended Beneficiaries

Another important advantage of a revocable living trust is ensuring that there are no unintended beneficiaries of your estate. A revocable living trust is a wonderful tool in enabling you to determine who you want to receive portions of your estate, how you would like them to receive those distributions, and distinguish certain individuals who you do not want to inherit any of your estate. One of the primary unintended beneficiaries of a person’s estate will likely surprise you: it is a probate attorney. By statute, probate attorneys can charge a portion of the estate when they are retained to handle a probate administration. The following is a table listing the range of fees an attorney can charge the estate when probating an estate:

Value of Estate Attorney Fees
Under $40,000.00 $1,500.00
$40,000.00 to $70,000.00 $2,250.00
$70,000.00 to $100,000.00> $3,000.00
$100,000.00 to $1 million $3,000.00 and 3% of the value over $100,00.00
$1 million to $3 million $30,000.00 and 2.5% of the value over $1 million
$3 million to $5 million $50,000.00 and 2% of the value over $3 million
$5 million to $10 million $90,000.00 and 1.5% of the value over $5 million
Over $10 million $165,000.00 and 1% of the value over $10 million

Additionally, these attorneys are entitled to be the first individuals paid from the probate estate – even before the decedent’s creditors or heirs are paid! Whatever is remaining after an attorney’s fees are paid from the estate (less other expenses and payments) will be distributed to the decedent’s beneficiaries. It is safe to say that an individual would rather have their assets go to their loved ones rather than to an unnamed attorney. This can be avoided altogether if a revocable living trust is incorporated into your estate plan. This is because a properly formed and funded revocable living trust will avoid probate entirely, and thus prevent any unintended beneficiaries from inheriting your assets.

A Pour-Over Will to Back up a Living Trust

A common misconception is that a Last Will and Testament will avoid probate. This could not be further from the truth: a Last Will and Testament guarantees probate to occur. This is because a Last Will and Testament is your directive to the probate court, detailing how you want your assets to be distributed upon your passing. Additionally, probate occurs if any one or more assets are left in your name alone with no beneficiary. To avoid probate, you must not have assets in your individual name, which is why a living trust is so advantageous. When establishing a living trust, there are no assets in your individual name because the legal title of your assets is held by the trust. Therefore, your estate will not be subject to probate.

You may be asking yourself, “If there are no assets in my individual name, which means a probate will not need to be opened, why would I need a Last Will and Testament?” Even though a living trust avoids probate and defeats the need for a Last Will and Testament, you always want to have a Last Will and Testament as your safety net. This Last Will and Testament will direct any assets that may be left outside of your trust inadvertently to be distributed to your trust, and those assets will then be distributed to your beneficiaries according to the terms of your trust. The nickname of this type of Last Will and Testament is a “Pour-Over Will,” because it effectively takes those assets that are subject to probate and “pours” them over into your trust. On the other hand, if you die without a Last Will and Testament, yet have a living trust, the assets that are not a part of your living trust will be distributed to Florida’s laws of intestacy.

Tax Ramifications of a Revocable Living Trust

Although creating a living trust will avoid probate, if it is created and managed properly, if does not mean that your estate is not subject to federal estate taxes. These tax ramifications can be lessened or avoided by the type of trust you create, since there are specific types of sophisticated trusts that can be created to manage high-valued estates. However, this is a concern of very few people now, since the Unified Tax Credit allowed by the Federal Government has been increased to $11.4 million per individual as of 2019. This means that a married couple can leave $22.8 million to their heirs without paying federal estate or gift taxes. Therefore, unless your estate is valued at greater than $11.4 per individual, federal estate taxes are irrelevant.

Deciding on a Living Trust in Florida

Our estate planning attorneys at Gorman & Jones, PLC can effectively advise you on whether a revocable living trust will be an advantageous part of your estate plan when considering your goals and your assets. Depending on your particular circumstances, our attorneys can draft trust documents that will meet your precise needs and will help you accomplish your estate planning goals. Contrary to what our attorneys have witnessed in other law firms, our attorneys at Gorman & Jones, PLC will not push you into doing anything to generate needless legal fees and we will let you know whether a trust will be to your advantage or not.

Some of the goals that can be achieved by creating a revocable living trust include:

  • asset protection
  • protecting your heirs from unscrupulous individuals
  • protecting and providing for a disabled loved one
  • giving to a charitable organization or a cause support

The experienced attorneys at Gorman & Jones, PLC can draft all the documents needed to ensure your estate planning goals are met for you and your family. Contact the law offices of Gorman & Jones, PLC in Tampa for honest advice and answers to all your revocable living trust and estate planning questions.

What Makes Gorman & Jones Different

One of the most beautiful aspects about life is that everyone is different; no one person’s life or situation is the same. The same should be said about your estate plan. Your estate plan is not a “one-size-fits-all” project, since all aspects of your life should be considered when putting your plans into place. Some estate planning law firms use the “one-size-fits-all” approach, but that leaves so many opportunities for the unexpected to occur in your estate plan that could potentially deviate from your wishes. Additionally, many individuals considering creating their estate plan (whether it is a Revocable Living Trust or a Last Will and Testament) will choose the less expensive, online options when creating their estate planning documents. Sometimes less is not more, and the ultimate price you could pay is unintended consequences resulting from insufficient planning.

At the law firm of Gorman & Jones, PLC, our experienced Estate Planning attorneys will take the time to sit down with you and learn about your goals, potential issues. One we learn about you and your goals, our attorneys will create a custom-tailored estate plan that will last a lifetime and set your estate plan in motion. Estate planning is not a “one-size-fits-all” project and the “cookie-cutter” approach is simply insufficient to set your estate up for success. Contact the law offices of Gorman & Jones, PLC in Tampa at (813) 856-5625 for a free initial consultation to discuss your estate planning goals.

Homestead and Revocable Living Trusts – the infamous case of In re Bosonetto

As detailed above, many individuals flock to Florida for our Constitutional Homestead protections for creditor protection. (See also “Here’s where O.J. Simpson could spend time in Florida once he’s out of the joint” for a recent cultural example of this statement). Additionally, Florida has simple and straightforward laws regarding revocable living trusts. Placing an asset into a revocable living trust, such as real property, is a measure important in avoiding probate. However, many individuals are worried about one intersection between the two: ownership of a Homestead property by a revocable living trust. Much of the worry behind this decision is due to a case named In Re Bosonetto, 271 B.R. 403 (Bankr. M.D. Fla. 2001).

In re Bosonetto revolved around a decision by a bankruptcy judge concerning whether the debtor’s Homestead property lost its Homestead protections because it was placed into the debtor’s revocable living trust. The judge ruled that the debtor’s revocable living trust was not a “natural person” and the Homestead protection did not apply. This meant that the Homestead property of the debtor was subject to the forced sale to allow the creditors to satisfy the debtor’s outstanding debts. However, since this case was decided, five courts in Florida (two of these were bankruptcy cases) have expressly ruled in opposition of In re Bosonetto and have stated that transferring a Homestead property into a revocable living trust does not lose its Homestead protections or exemptions.

The experienced revocable living trust attorneys at Gorman & Jones, PLC are strong believers that this issue needs to be clarified by the Florida Supreme Court to solidify the bright-line rule that transferring an individual’s Homestead property into their revocable living trust does not lose its Homestead status. Contact the law offices of Gorman & Jones, PLC at (813) 856-5625 today for honest advice and answers to all your revocable living trust and Homestead property questions.

FAQs

Q: What happens to the mortgage on my father’s Homestead property now that he has passed?
A: Since a mortgage typically requires the real property to be held as collateral under the mortgage loan, the mortgage payments must be paid to prevent a foreclosure. This means that, even though your father has passed, the obligation on the mortgage loan still survives. You and your father’s heirs under his Last Will and Testament must continue making the payments or else the mortgage company could foreclose on the property. It would be wise to contact the mortgage company or the bank to see what needs to be done to satisfy the loan obligations and avoid foreclosure due to your father’s passing.

Q: If my Limited Liability Company owns the real property I’m using as my primary residence, is it still considered Homestead property?
A: No. Under Florida’s Constitution, only “natural persons” can claim Homestead property and be availed of the Homestead protections it provides. Since an LLC is not a “natural person,” the property cannot qualify as Homestead property (even though you, an individual, are using it as your primary residence).

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