A Last Will and Testament (“Will”) is generally considered the centerpiece of an individual’s estate plan. However, use of a revocable trust as an estate planning vehicle can provide the same or more flexibility, and can be used to avoid the probate process.
A revocable trust, also called a “revocable living trust” or “inter vivos trust” (collectively, “Revocable Trust”) is created by executing a trust agreement during a person’s lifetime. It involves three key players: the person who creates the trust (“grantor”); the person who manages the trust property in accordance with the trust agreement’s terms (“trustee”); and the individuals whom the trust will benefit (“beneficiaries”). Commonly, the grantor will also be the trustee and a beneficiary during life. A successor trustee is designated in the event the original trustee becomes incapacitated or dies.
Funding of a Revocable Trust is accomplished by retitling and transferring assets into the name of the trustee to hold for the benefit of the trust beneficiaries (e.g., real property is transferred by deed from the grantor to the trustee). A grantor can also designate his or her Revocable Trust as the beneficiary of retirement plan assets and life insurance death benefits.
A Revocable Trust can be revoked or amended at any time by the grantor, who can also personally reacquire any property that is held in the trust.
Upon the grantor’s death, a Revocable Trust becomes irrevocable, the successor trustee assumes his or her role and distributes or retains the remaining trust property in accordance with the trust agreement.
Proper funding of a Revocable Trust with all of the grantor’s assets will allow probate avoidance.
A Will must be formally admitted to probate by a Surrogate’s Court to give an Executor authority to act and take control of the assets of an estate. A Revocable Trust does not need court approval, and the successor trustee can access and administer trust assets immediately upon, or shortly after, the death of the grantor. This results in increased privacy with respect to the grantor’s estate plan because the agreement is not filed with the Surrogate’s Court and notice to certain family members that would otherwise be required in a probate proceeding is avoided.
A Revocable Trust is especially advantageous for grantors who own real property in multiple states. Probate of the Will is necessary in each state where a grantor’s properties are located, and by transferring the properties into a Revocable Trust, probate can be avoided.
When an individual becomes incapacitated, it may be necessary for a court to appoint a guardian to manage his or her assets. With a Revocable Trust in place, costly guardianship proceedings may be avoided. A successor trustee can step into the role of the then-serving trustee upon incapacity to manage the trust’s assets for the benefit of the grantor, without court intervention or supervision.
While a Revocable Trust can provide many benefits to an estate plan, those benefits should not be overstated. A trust agreement does not replace a Will, does not provide estate tax or income tax planning benefits, and does not protect a person’s assets from creditors or protect assets from required spenddown in the event nursing home care is needed.
The trust agreement only affects assets that are transferred or retitled to the trustee, so if an asset is not properly transferred or retitled and remains titled to an individual at death, that asset must be administered through the probate process.
Lastly, depending on the complexity of an individual’s estate, creating and funding a Revocable Trust can be more expensive than preparation of a Will. These costs should be balanced against potential savings from the avoidance of probate, and against the ease of succession to the management and distribution of trust assets to beneficiaries upon the grantor’s death.
If you need ancillary probate in Florida because you did not use a Revocable Trust, or if you have a different trusts or estates issue in Florida, our attorneys can help. The Trusts and Estates Practice at Phillips Lytle has experience administering Florida estates and a member of the team is admitted to practice law in Florida.
If you are considering full Florida residency, spend a large part of the year in Florida, or own property in Florida, we encourage a discussion about your estate planning options. We frequently assist clients in the preparation of estate planning documents, including trusts, that conform specifically to Florida law. Please feel free to schedule an appointment with us to discuss the options available to suit your individual needs.
Due to recent federal legislation, millions of small businesses, as well as trustees, beneficiaries, or grantors of certain trusts, may now be required to report business ownership information to the Department of Treasury.
The Corporate Transparency Act (31 U.S.C. § 5336) (the “CTA”) and the associated regulations (31 C.F.R. § 1010.380) require that reporting companies (i.e., entities that (a) have been formed by the filing of a document with a secretary of state or any similar office under the law of a state or tribal jurisdiction or (b) entities that have been formed under the law of a foreign country and are registered to do business in any state or tribal jurisdiction by the filing of a document with a secretary of state or any similar office under the law of a state or tribal jurisdiction) that are not otherwise exempt must file beneficial ownership information with the Financial Crimes Enforcement Network of the Department of the Treasury (“FinCEN”).
Reporting companies that are formed (or, in the case of foreign reporting companies, registered) after January 1, 2024, that are not otherwise exempt have a total of 90 calendar days (in the case of entities formed in 2024) and a total of 30 calendar days (in the case of entities formed in 2025 and thereafter) from the date of formation or registration to file an initial Beneficial Ownership Information Report (“BOIR”) with FinCEN on the FinCEN Beneficial Ownership Information portal (www.fincen.gov/boi) (the “FinCEN Portal”).
The key component of filing and completing the BOIR is to identify and provide information on every individual that is a beneficial owner of the reporting company that is the subject of the report. A beneficial owner is any individual who, directly or indirectly, either (a) exercises substantial control over such reporting company or (b) owns or controls at least 25% of the ownership interests of such reporting company.
Reporting companies that are formed prior to January 1, 2024, that are not otherwise exempt have until December 31, 2024, to file a BOIR with FinCEN.
Under the rules and regulations of the CTA, a trustee of a trust or, in some cases, a beneficiary or a grantor of a trust, that exercises substantial control, or owns or controls at least 25% of the ownership interests in a reporting company (e.g., holding shares in a corporation or ownership interests in a limited liability company), will be required to file a BOIR with FinCEN as it relates to said reporting company. Importantly, in that instance, the trust itself is not a beneficial owner, only individuals may be beneficial owners.
Effective July 19, 2024, New York will allow the transfer of real property by a Transfer on Death Deed. A Transfer on Death Deed allows a property owner to name one or more beneficiaries of real property, with such transfer taking place upon transferor’s death automatically and without the need for probate or any other proceeding.
While potentially useful in some cases, the recordation of a Transfer on Death Deed may have unintended consequences upon your estate plan, and a Trusts and Estates attorney should be consulted prior to taking any action.
Additional Assistance
If your current estate plan is affected by any of the foregoing, or if you would like us to review and assist you in updating your plan, please contact a member of our Trusts and Estates Practice Team or the Phillips Lytle attorney with whom you have a relationship.
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