Trust Basics

Trusts are a popular choice when someone is looking to establish an estate plan. Living trusts are the type most well-known because they offer attractive tax advantages, and distribute the assets contained within the trust outside of probate, saving the estate money and time. In addition, the trust as a whole, and its specific terms, may be modified or completely revoked by the creator during his/her lifetime without limitation. While this type of trust covers the needs and desires of many people looking to stabilize their finances in the near and far future, it is not the only type of trust that exists. The law recognizes a number of other kinds of trusts that serve different purposes and are useful in various situations. Knowing about a variety of trust options as one moves through the estate planning process will allow for better decision-making, so an overview of trusts generally, and the particulars of a few types will follow below.

Trusts 101

At its most basic, a trust is a legal document that creates a right in property held by someone in a fiduciary capacity for the benefit of someone else. For example, a father who creates a trust that lists his children as beneficiaries and names his financial advisor as trustee, is the type of legal relationship these documents produce. In order for a trust to be valid, and thus legally enforceable, the following must be true:

  • the creator has the capacity to form a trust, which means the creator has the legal ability to enter into a contract;
  • the creator demonstrates an intent to form a trust;
  • the trust has an identifiable beneficiary;
  • the trustee has discernible duties to perform; and
  • the same person is not both the sole beneficiary and sole trustee;

A beneficiary is considered identifiable if they can be ascertained at the present time or in the future. If no beneficiary is selected, the trust will only survive if it falls into one of the following categories: charitable, non-charitable, or an animal trust.

Charitable Trusts

As the name implies, charitable trusts are legal documents that provide altruistic benefits to a cause, organization, or the general public. Recognized charitable purposes include:

  • advancement of the humanities, sciences, education, or religion; and
  • promotion of health or government purposes.

If the trust document does not indicate the specific charity or charitable purpose the creator wishes to support, the court can make a selection on the creator’s behalf, to the extent it can be determined.

Non-Charitable Trusts

A non-charitable trust has no direct beneficiaries and exists to fulfill a specific purpose.  Examples of trusts considered non-charitable include those created to maintain land, buildings, animals, and burial plots. Florida law limits the enforcement of these trusts to 21 years. In addition, the trust is only permitted to own property to the extent necessary to support the trust’s purpose. If the trust holds excess property, it must be distributed back to the creator, if living, or as an asset of the creator’s estate.

Spendthrift Trusts

Finally, there are spendthrift trusts, which parents routinely create for the benefit of their children. These trusts prohibit the beneficiary from selling away his/her interest in the trust. In addition, creditors cannot access trust funds until they are distributed to the beneficiary. Essentially, these trusts are used when the creator is concerned a beneficiary may not be mature enough to responsibly manage this financial asset, and wants to ensure the beneficiary’s interest is not quickly dissipated.

Work with a Florida Estate Planning Attorney

Trusts can be tailored to the needs of the creator, and can be as complicated or simple as makes sense for a particular person. An experienced estate planning attorney can assess your financial portfolio, and advise you on the estate planning options best for you and your family. The Tampa law firm of Bubley & Bubley, P.A. will work with you to build an estate plan that will serve you for years. Contact us for a free consultation.

Resource:

http://www.leg.state.fl.us/STATUTES/index.cfm?App_mode=Display_Statute&Search_String=&URL=0700-0799/0736/Sections/0736.0402.html

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