7 Reasons Why Forming A Trust Is Worth The Investment

Forming a trust can help you to limit estate tax liability, avoid probate, and provide efficiency for your loved ones. Trusts have a reputation for being expensive to set up, but these powerful and highly customizable estate planning tools can often be wise investments, offering substantial benefits that may outweigh the costs involved in their initial setup. Schedule a consultation with a Florida estate planning attorney to learn more about whether forming a trust may be right for you. Reach an experienced trust attorney at the Boca Raton office of Loughlin Law, P.A. today by calling 561-559-6214.

Reasons for Forming a Trust

There are a number of reasons why forming a trust can be a smart estate planning decision. The applicability of each reason will depend on the circumstances and priorities of the individual preparing his or her estate plan – but many people will find that at least a few of these reasons correspond to their overall estate planning goals.

Reason #1: Rapid Transfer of Assets

One of the most commonly cited reasons for forming a trust is the desire to avoid probate. Although Florida law provides for an expedited process known as “summary administration” that serves as an alternative to the state’s formal probate proceedings, the Florida Bar Association explains that summary administration is only available for estates whose total value is computed at $75,000 or less and whose debts are all paid or whose creditors do not object to the petition for summary administration.

If a grantor ensures the prompt discharge of his or her debt obligations, then forming a trust that reduces the overall value of the estate to less than $75,000 may pave the way for avoiding probate, saving surviving family and friends time, trouble, and expense. More broadly, as well, forming a trust can also assist in facilitating the transfer of specific assets outside the probate process, even if keeping the total estate out of probate is not among an individual’s primary estate planning goals.

Reason #2: Navigating State-Mandated Limitations on a Testator’s Prerogatives

Testator is the legal term for an individual who creates and attests (typically by signing) a Last Will and Testament. Testators do typically enjoy broad latitude in how they direct the distribution of the property that remains in their estates at the time of each testator’s own death, but there are some limits to this freedom of choice.

State Legal Requirements for Specific Beneficiaries

Many states, including Florida, have laws in place that require minimum portions to go to certain beneficiaries based on their legal or familial relation to the decedent (the individual who has died), regardless of the terms set out in the Will. The most notable of these requirements in Florida is the “elective share of the surviving spouse.”

Fla. Rev. Stat. (2023) § 732.201 mandates that a spouse who survives a testator is entitled to a value equivalent to 30% of the decedent’s estate, which for the purposes of computing the elective share is usually taken to include the decedent’s share in property owned jointly with another party (other than the surviving spouse), in addition to property the testator owned outright prior to his or her death. If the provision(s) made for a surviving spouse in the testator’s Will amount to less than the 30% share to which the surviving spouse is entitled under Florida law, then the surviving spouse is entitled to make his or her election before the personal representative of the estate can proceed to make distributions to other beneficiaries named in the Will.

Choosing the Right Type of Trust

In forming a trust to address any of these concerns, or others that emerge along similar lines, it is important to take into account the scope of property to be considered in the final computation, which for the elective share of the surviving spouse is outlined in § 732.2035 Fla. Rev. Stat. (2023). The revocable vs. irrevocable status of the trust during the grantor’s life can also be an important consideration. Using the elective share as an example, however, although forming a trust does nothing to alter that elective share requirement, it can prove an effective strategy for finessing the overall outcome by removing assets from the total property out of which the share will be calculated.

Reason #3: Privacy Concerns

The way trusts can address privacy concerns is related to their ability to transfer assets outside the probate process. The Last Will and Testament becomes a matter of public record during the course of the probate process, and anyone who wishes to do so can gain access to the document and read its contents. While not every individual will find this openness to public scrutiny concerning, others may – for any number of reasons – long for greater privacy. Trusts, unlike Wills, are private documents; any transfer of assets conducted via the beneficiary designation(s) in a trust instrument is excluded from the public record. Assuming neither the trustee nor the beneficiary discloses the details of the transfer, the information can theoretically remain private indefinitely.

Reason #4: Control Over the Use of Assets

While beneficiaries can sometimes be frustrated by the limitations placed on their use of assets placed in a trust, careful drafting of a trust instrument can allow a grantor to ensure that funds left to a charitable organization will not be taken up solely with administrative costs (a very common concern among nonprofit organizations of all types). A grandparent can use a trust to “manipulate” a grandchild’s choice of college by “earmarking” funds to be disbursed exclusively for payment of tuition at a specific institution – but the same type of restriction can also be used to safeguard a beloved grandchild’s chance to attend the college of their choice by requiring the trustee to ascertain that the beneficiary, and not his or her parents or another party, has made the final determination with respect to the selection of a university.

Reason #5: Limiting Estate Tax Liability

Florida has no estate tax – but the federal government does. Internal Revenue Service (IRS) guidelines require estates whose total value exceeds the threshold established for the year of the decedent’s death to calculate and remit the federal estate tax as part of the final administration process (typically carried out by the estate’s personal representative). While the federal threshold for estate tax liability is high enough that many individuals may never come close to reaching it, those who leave behind estates exceeding that value will often leave behind significantly diminished inheritances to their loved ones. Placing assets in an irrevocable trust during the grantor’s life can remove them from “gross estate” computation, limiting the estate’s total calculated value to bring it below the federal threshold. Like many other taxes levied in the United States, the federal estate tax is considered a “graduated” tax, meaning the tax rate imposed increases with the value of the estate taxed, so even for estates that remain above the amount designated for the year of death, forming a trust that meets the necessary criteria for exclusion from the gross estate can yield tax advantages by liming the final estate tax rate.

Reason #6: Long Term Care Planning

One often-overlooked potential reason for forming a trust is long-term care planning, also sometimes called advance care planning (not to be confused with, although certainly wise to use in conjunction with, advance care directives). Forming a trust to provide for long-term care needs can help to ensure that the funds will be available when needed. Individuals interested in forming a trust for this purpose may create either a revocable or an irrevocable trust. An irrevocable trust imposes obvious limitations on the future use of funds, but may help to protect the grantor’s eligibility for Medicare and other important benefits. Grantors who choose to set up a revocable trust and name themselves as trustees will likely wish to designate at least one co-trustee to ensure the continuity of asset management in the event that the grantor’s needs for long-term care overlap with needs for incapacity planning. Either option has its advantages and disadvantages, so you may wish to consider speaking with an experienced trust and estate planning attorney at Loughlin Law, P.A. to discuss which options may make the most sense for your individual situation.

Reason #7: Addressing Concerns a Will Cannot

While most individuals who create Wills do so in the hopes of providing for their loved ones, the reality is that there are some considerations a Will is not designed to address. A testator can leave his or her pets to a designated beneficiary via a Will – but the resources needed to care for those pets are a different matter. The testator can leave the same beneficiary funds to assist in covering the costs of the pets’ care, with expressed wishes that the funds be used for that purpose; however, legally the assets will become the property of that beneficiary, and even if the individual is fully trustworthy the assets in question will become subject to the demands of his or her creditors, among other potential obligations. Forming a trust to care for pets allows a grantor to set aside funds for the pets’ ongoing care, as well as appointing a trustee, rather than a beneficiary, to take charge of the caretaking. There are many such situations, in which a trust allows an individual to make provisions in line with their personal priorities, even when these priorities do not have an easy solution under other estate planning structures.

Speak With an Estate Planning Attorney To Learn If a Trust Is Right For You

These are just seven of the many reasons why forming a trust can be a wise investment whose benefits outweigh its costs. The specific advantages of forming a trust will depend on each individual’s unique circumstances and estate planning goals. To learn more, or to discuss the type of trust that may be most appropriate to your personal situation, call 561-559-6214 today and schedule a consultation with a member of the experienced and attentive team at Loughlin Law, P.A.