A previous post here discussed the use of trusts as part of a comprehensive estate plan in Florida. We have also touched on some of the different types of trusts, and a few of the basic differences between the two major trusts types: revocable and irrevocable. When people think of trusts they likely are often picturing irrevocable trusts, whether they know the terminology or not. But, it can be just as important to know about revocable trusts and some of the caveats regarding their use as an estate planning tool.
Some of our readers may know that revocable trusts are those in which the grantor, or the person setting up the trust, retains control over the assets throughout his or her lifetime. In fact, in many cases, the grantor is the trustee as well, so that the grantor may make the decisions about how to use the assets contained in the trust until death, and that duty is then taken over by a successor trustee. This obviously has some advantages, especially if the assets within the trust are being used as a means of support for the grantor. However, as a Florida Bar publication points out, revocable or "living" trusts also have some characteristics that may not be as desirable as those of an irrevocable trust.
One of the major reasons why many people choose to use a trust is in an effort to avoid or minimize the time and monetary costs associated with the probate process. While a revocable will technically allow assets held in the trust to pass to heirs without probate, there is a complication. Because the grantor of a revocable trust retains control of the assets in the trust during the grantor's lifetime, they are considered part of the estate at death, and thus can be reached by creditors.
Because Florida trust law does not provide specifically for creditor claims, creditors will have a two year period to file a claim against the trust assets. This means that a trustee may not want to pay out to beneficiaries until it is certain all creditor claims have been foreclosed. Thus, many times assets in revocable trusts will be entered into probate to utilize the much shorter time restrictions on creditor claims. Further, for the same reasons, revocable trusts may not contain all the protections from estate tax that are to be had by an irrevocable trust.