The holiday season is the season of giving, whether you’re handing out gifts or donating your money or time to charity. No matter the holiday you celebrate, the end of the year always gives people time to think about what is most important to them. In some cases, true giving is caring for what you already have, and one way to do that is through a trust. In this article, we’ll discuss how a trust can help you care for the people closest to you.
What is a Trust?
A trust is a three-party fiduciary relationship. You act as the donor (or grantor), and you transfer an asset (money, property, a valued item, etc.) to the trustee, who holds legal title of said asset. When you transfer the asset to the trustee, you no longer hold legal title. At your direction or upon your death, the trustee will transfer legal title to the beneficiary. The beneficiary is the person that you always intended to possess the asset in the end.
Trusts are beneficial, when compared to wills, because they do not have to pass through probate court. Another benefit of trusts is that there are many, many different types from which to choose. Below are just a few of the main kinds of trusts, as well as a brief definition of each and what they entail.
A revocable trust is a type of trust that has provisions which can be altered or canceled should the grantor choose. These trusts usually provide that the property be maintained for the benefit of the grantor. After the grantor dies, the trust functions like a will. These trusts are beneficial because they ensure that your trust is for your own benefit, and it holds true to that purpose even if you are incapable of managing your affairs.
By contrast, an irrevocable trust’s terms or provisions cannot be modified, terminated, or amended without the permission of the intended beneficiary. The main downside is the lack of flexibility. If you change your mind, you’re out of luck. One of the main upsides of an irrevocable trust is that it can potentially offer asset protection from possible lawsuits or future creditors.
Also called an ATP, an asset protection trust is a type of trust that holds your assets with the intent of shielding them from current or potential creditors. This financial-planning trust vehicle offers very strong protection against lawsuits against you or your estate. ATPs are set up to legally mitigate the effects of things such as bankruptcy, divorce, or taxation.
If there’s a charity that means a lot to you, consider a charitable trust. This trust, which is irrevocable for public policy reasons, are established for charitable purposes. The set of usually-liquid assets are signed over by the donor. They are managed and held by the charity for a predetermined period of time. Usually, some or all of the assets’ produced interest goes to the charity. These charitable trusts are defined in IRS Code §4947(a)(1), though they are not tax-exempt.
The constructive trust differs from the other trusts on this list because it is not a trust by the same legal definition. Instead, a constructive trust is an equitable remedy. The court imposes this remedy to benefit a party that might have been wrongfully deprived of its rights. The deprivation may have been caused by a person holding a property right that they stole, or it could have been caused by a breach of fiduciary duty. This trust is worth a mention because it shows that there are equitable remedies in court—a bad trustee does not mean that all hope is lost.
Requirements in Florida
Each individual trust has its own requirements in Florida, as in any state. The requirements to create a trust generally include the duty of good faith, which states that a trustee must act in good faith. The trustee must act in accordance with the trust’s terms and purposes and the beneficiaries’ interests. Secondly, a trust must have a lawful purpose that is not only legal, but also not “contrary to public policy.” The trust’s purpose must be possible to achieve as well. § 736.0105 of the Florida Trust Code governs trust requirements.
The small list we have given you is just the tip of the iceberg when it comes to trusts. Trusts are a way to care for the people who mean the most to you, all while avoiding the court system that could be time-consuming and expensive for everyone involved. This holiday season, remember that, especially in these trying times, true giving means caring for those already around you.
Visit our website and get more details on trust administration.