Trusts in Florida
Florida residents planning for death have often transferred their property into revocable trusts. Revocable trusts can be used in Florida to avoid the necessity for a routine probate proceeding to establish ownership of a person's property after his death. This is accomplished by transferring the ownership of the property to a trustee while the settlor, the person transferring property into trust, is alive. That is why such a trust is often called a living trust or inter vivos trust . After the death of the settlor, the trustee can transfer title to the decedent's property without the necessity of a probate proceeding. However, the trustee is liable to all the creditors of decedent and to the U.S. Internal Revenue Service and the State of Florida for estate taxes for the property or the proceeds that would be generated by a bona fide sale of the property until all claims of creditors and all taxes have been determined and satisfied. All creditors' claims against decedent are barred two years after decedent's death unless a probate estate has been opened. Creditor's claims can be determined only in a probate proceeding. A creditor can open an estate and become personal representative if the other persons who have preference to be the personal representative do not. The creditors must file their claims in probate within three months of publication of the Notice of Administration. The personal representative must also serve the Notice upon known creditors. All professional trustees require that a probate proceeding be done so that the claims and taxes can be determined and disposed of within a short period of time and then the property can be sold or distributed to the beneficiaries safely.
Often the settlor will name himself as trustee of his revocable trust and convey his property to himself as trustee. Florida law recognizes that the successor trustee, after the death of the settlor of a revocable trust, has the power, if given in the trust agreement, to transfer title to property held in trust to a beneficiary of the trust pursuant to instructions in the trust agreement or to a purchaser from the trustee However, the trustee remains liable to the extent of the trust property at the time of settlor's death, and a reasonable return thereon, for claims of creditors, costs of administration in probate, and estate taxes to the extent that the probate estate has insufficient assets. If the deceased settlor was a Florida resident, then property sold by the trustee for its bona fide value is released upon closing from the automatic liens for Federal estate taxes and for Florida estate taxes. The lien then attaches to the proceeds in the hands of the trustee. Florida real property conveyed to a revocable trust by a non-resident of Florida is encumbered by the Florida estate tax lien after his death until released by the Florida Department of Revenue.
Property is held in trust only if it has been properly conveyed to the trustee by appropriate deed, probate proceedings or other legally recognized conveyance. Execution of the trust agreement does not place any property into trust. Any trust which has testamentary aspects and amendments must be executed with the formalities required for a valid will. Chapter 737 of Florida Statutes governs administration of trusts and the powers and liabilities of trustees. Conveyance of the settlor's homestead property to the trustee of a revocable trust does not change its homestead status.
The U.S. Internal Revenue Code ignores a revocable trust while the settlor is alive and taxes the settlor for trust income as if the trust did not exist. For unified transfer tax (gift tax and estate tax) purposes, the Code also deems that no completed gift has occurred. That tax treatment facilitates use of a revocable trust for estate planning since no separate income tax return is required and unified transfer taxes are not imposed while the trust is revocable and the Settlor is alive. The revocable trust can be established and structured to provide for death planning with no administration during settlor's life and only small inconveniences to maintain the trust structure. In addition, the trust structure can be very useful in the event of the settlor's disability and may allow avoidance of an incompetency hearing and guardianship. The settlor can provide for complex distribution schemes with a revocable trust or a testamentary trust (a trust established in the decedent's will). Only a trustee can efficiently administer complex provisions such as deriving income from trust assets and distributing it, or a portion of it, to the surviving spouse or another person for life and then distributing the ownership of the remainder after the surviving spouse's death to other beneficiaries. A trust, whether revocable or testamentary, does not save estate or gift taxes. It is, however, a useful tool for structuring an estate plan to save estate taxes and to hold and distribute the settlor's property to achieve his goals after death.
Since trust administration under the supervision of the probate court is not automatically required in order to pass title to the beneficiaries, a revocable trust can reduce probate expenses in simple uncontested distributions of the deceased settlor's property.
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