What is a Trust?A Trust is a legal relationship (normally created by a legal document) between the owner of assets (“grantor”) and the person(s) receiving the assets upon the grantor’s death (“beneficiary” or “beneficiaries”). Trusts also require the designation of a “trustee” to oversee the execution of provisions contained in the Trust. The trustee ensures distribution and management of assets and abides by the Trust. A Trust allows a grantor to provide a legal framework for their assets throughout the remainder of the grantor’s life. It also provides beneficiaries an accessible way to be transferred assets (money, real estate, and other valuable property) without engaging in probate proceedings. Unlike a Will that only provides instructions for the distribution of assets upon a grantor’s debt, a Trust allows a grantor to exert more control over assets while alive, known as an inter vivos or “living trust.” A Trust can also be created to distribute or manage assets upon a grantor’s death—a “testamentary trust.”
Revocable vs. Irrevocable TrustsUnder Florida Trust law, a Trust can be revocable or irrevocable. Depending on the grantor’s specific financial circumstances, both options come with benefits and drawbacks that should be considered.
Revocable TrustA revocable trust, commonly known as a “revocable living trust” or “living trust,” is a type of Trust that exists during the grantor's lifetime. A revocable trust allows the grantor to set the terms for managing and distributing their assets while they are still alive. A Revocable Trust is most often used as a tool for grantors with complete control over their assets and planning for end-of-life care. However, revocable trusts cannot be used to avoid the high cost of nursing home care or avoid payment of other liabilities that may occur during the estate holder’s lifetime. Finally, revocable trusts will evolve into irrevocable ones once the estate holder has passed away.
Irrevocable TrustAn irrevocable trust is a trust that cannot be changed or revoked once it is established. Irrevocable trusts are most commonly used to shield estate holders from the high cost of nursing home care or to avoid losing certain government-funded or tax benefits because of shifts in income. The drawback to creating an irrevocable trust is the loss of flexibility an estate holder has over their assets. Common irrevocable trusts include:
- Qualified Income Trust: helps to prevent Medicaid ineligibility from shifts in income.
- Special Needs Trust: allows a person with a disability to retain assets while receiving care through Medicaid.
- Asset Protection Trust: allows a person to protect their assets when seeking care from a nursing home.