A trust is a legal arrangement wherein a settlor (or grantor) transfers the title of property to a trustee for the benefit of designated beneficiaries. This arrangement is based on the instructions outlined in the trust agreement – the document that allows the settlor to legally transfer the ownership of specific assets to the trustee.
In this article, you will discover the four main types of trusts in Florida.
What Are the Four Major Types of Trusts in Florida? – An Overview
As its name suggests, a revocable trust is a trust that can be amended, changed, or revoked at any time. It allows you to retain control over the assets held in the trust up until your death, after that the assets will be distributed directly to the designated beneficiaries.
In this type of trust, the trust may appoint himself as the trustee, while appointing a successor trustee in case of death or incapacitation (e.g., another person, a bank, a trust company, an attorney, etc.).
Therefore, as long as the settlor or grantor is still alive and not incapacitated, he/she may modify, amend, or terminate the trust without issue.
On the other hand, irrevocable trusts do not permit changes or amendments once the trust agreement is signed by the settlor or grantor. Once one or multiple assets are transferred to an irrevocable trust, the settlor or grantor no longer controls the property held in the trust.
Over time, the assets held in the trust continue to appreciate, but they are no longer subject to estate taxes. Therefore, irrevocable trusts are often utilized by wealthy individuals to reduce taxable estate while preserving the value of the property.
Among the advantages of irrevocable trusts, it is possible to include:
- Avoiding probate
- Minimizing taxation on highly valuable properties
- Preserving beneficiaries’ eligibility for long-term care (e.g., Medicaid)
- Protecting beneficiaries with special needs
It is crucial noting that, once the settlor or grantor passes away, any type of trust becomes irrevocable – regardless of how it was set up initially. Upon the trustor’s passing, it is no longer possible to change, amend, or revoke all types of trusts in most situations.
A land trust is a type of revocable trust structured specifically for real property. Therefore, this legal arrangement may be used to buy, hold, finance, or sell real estate in Florida. There are several advantages associated with the use of lands trust, such as:
- Confidentiality over their ownership of real property (as the trustor(s) and beneficiaries are not identified in public records)
- Private transfers of ownership (either by sale or gift)
- Avoidance of government recording and transfer fees
- Mitigation of taxes associated with property transfers
- Probate avoidance
- Protecting homestead exemption
A testamentary trust is not technically a trust. While the person creating the testamentary trust is alive, the document strictly provides instructions for the creation of trust after his/her death.
Testamentary trusts remain revocable while the person who established them is still alive. When the person dies and the terms of the last will cannot be changed, the testamentary trust becomes irrevocable.
However, the main disadvantage of a testamentary trust is that it does not avoid probate.