How A Trust Can Provide For Efficient Management And Transfer Of Assets

Trusts are one of the main cornerstones of estate planning. A trust is a legal entity created by one party to oversee and care for assets on behalf of a beneficiary. The law allows many forms of trusts that can be used for a variety of purposes. The importance of proper drafting and funding of trusts cannot be overemphasized. Clients need to seek competent, comprehensive advice and assistance to fully achieve the health care, financial, income tax and estate planning opportunities available through a trust.

Delzer, Coulter & Bell, P.A., gives clients and their families reassurance through our trust attorneys’ qualifications. Board-certified attorneys Wayne R. Coulter and Rebecca C. Bell bring their deep understanding of trust and estate law and elder law to provide you with comprehensive, personalized solutions.

The Basic Structure Of A Living Trust

A living trust is the most comprehensive and effective legal tool for avoiding the costs and delays of probate and providing for the management of your assets in the event of incapacity. As the name implies, a “living trust” is a trust set up during one’s lifetime. The trust is revocable and can be changed or canceled at any time prior to death, as long as the grantor remains mentally competent. The trust is administered and governed by the terms of the trust agreement. The person creating the trust is referred to as the “grantor” or “settlor.” The “trustee” manages and carries out the terms of the trust. Usually, the grantor acts as the initial trustee.

Protecting Assets From Probate And Against Incapacity

One of the main benefits of a living trust is to avoid the expense, delay, costs and related horrors of probate. While the procedures for settling your affairs through a trust administration process are similar to those in an estate administration, there is a primary difference: the elimination of court supervision.

This generally accomplishes a significant reduction in settlement expenses. Where the trust beneficiaries and the successor trustee are close family members who have full confidence in the successor trustee’s trustworthiness and capabilities, settlement expenses, if not entirely eliminated, are of a minimal amount.

Few also recognize the significant possibility of long-term incapacity prior to death. Estate planning professionals find the safeguards and protection that living trusts provide against the problems of incapacity to be of equal, or possibly even greater, value to living trust clients.

Trustee Responsibilities

Living trust administrations include the following fiduciary responsibilities for the trustee:

• Make a diligent search to ascertain the names and addresses of all persons having claims or demands against the decedent.
• Inventory assets and establish the income tax basis of beneficiaries in any real estate and investments.
• File all personal (Form 1040) income tax returns due by the decedent.
• File income tax returns (Form 1041) due for the estate/trust and determine allocation of income between the estate/trust and beneficiaries. Provide beneficiaries with tax reporting information (Schedule K-1, Form 1041).
• File a U.S. estate tax return if the estate for estate tax purposes exceeds the filing requirements for a U.S. estate tax return or if there is a surviving spouse who wishes to obtain a credit against the surviving spouse’s future estate tax liability for the unused credit exemption of the deceased spouse.
• To be sure that any future tax refunds or tax notices from the Internal Revenue Service are received, file Notice Concerning Fiduciary Relationship (Form 56) with the Internal Revenue Service.
• Collect all assets due to the estate/trust.
• Answer inquiries of beneficiaries and creditors.
• Contest any invalid claims made by creditors against the estate/trust.
• Evaluate and implement the various “after death” income tax planning options available to reduce and postpone income taxes.
• Correspond with beneficiaries to explain trust/estate procedures and the anticipated date of distribution to beneficiaries.
• If needed, obtain a tax identification number for the estate/trust.
• Sell or liquidate assets as needed to pay creditors or as desired by beneficiaries.
• Transfer assets to beneficiaries that are not sold.
• Answer correspondence after the trust/estate administration is completed from the Internal Revenue Service, the Florida Department of Revenue and creditors who seek payment after estate/trust administration is completed.

The selection of an appropriate trustee is of paramount importance in accomplishing your estate planning objectives. Not only must you have confidence in the trustee that they will not abuse the authority and trust placed in them, but you must also be assured that the trustee will be willing and able to assume the responsibilities of the role.

Trusts Versus Wills: Protection Against Contest By Family And Creditors

A living trust allows your affairs to be settled without court procedures and thus minimizes the potential for claims or contests after death. Distribution of your assets through a living trust administration does not require a public disclosure of your assets or the names of your beneficiaries.

On the other hand, contests of wills through probate procedures are easily accomplished. The admission of the will to probate and appointment of the personal representative by the court can easily be delayed by a disgruntled family member filing a one-page document called a “caveat.” Once a caveat is filed in a probate proceeding, the admission of the will to probate is delayed until a hearing is held to determine the validity of the will. In a similar fashion, in a probate proceeding, anyone seeking payment from a decedent may simply file a claim with the court.

Although an objection can be filed to the claim, the claim subjects the estate to potential litigation. However, when your affairs are being settled through a living trust, it is difficult for anyone to pursue a claim against your assets since there is no court proceeding in which a claim can be filed.

When Do You Need A Special Needs Trust In Florida?

You will need to include a special needs trust for any disabled beneficiaries in your trust who receive, or will be receiving, any public needs-based assistance, such as:

• Medicaid
• Supplemental Security Income (SSI)
• Food stamps
• TANF or Section 8 housing

Including a special needs trust will avoid the beneficiary becoming disqualified from his or her needs-based assistance program because of directly receiving an inheritance. Moreover, this type of trust will ensure that the beneficiary will have a better standard of living than what he or she could have subsisting only on governmental assistance. He or she will also have a better degree of health care than could exist otherwise, as well as a source of funds for items or services not provided for by governmental assistance.

Other Trust Options

As previously stated, living trusts and special needs trusts are not the only types of trust. We can review all appropriate options, such as:

• Testamentary trusts: You can choose to have a trust established upon your death for one or more of your beneficiaries through your will or living trust.
• Generation-skipping trusts: Skipping a generation through one of these trusts can save on estate and gift taxes.
• Charitable trusts: If leaving a financial legacy to a charity is important to your plan, you may want to consider a charitable trust.

These are only a few examples of trusts that may help you achieve your estate planning goals. Our trust attorneys are here to help you tailor your plan to fit your specific legacy goals.

Learn More About Trusts And Other Options

Talk to one of our board-certified trust attorneys about how this tool or other estate planning strategies may help accomplish your objectives. Contact us through our online form or by calling 727-361-2894.