Trusts are popular estate planning tools in Florida, which explains the existence of various types of trusts to fulfill distinct purposes. In this article, you will discover what a Florida testamentary trust is.
Florida Testamentary Trusts – The Basics
In a trust, a trustee (fiduciary) holds nominal ownership of the assets on behalf of the trust’s creator (also referred to as “trustor” or “settlor”) for the benefit of one or more beneficiaries.
Once an asset is transferred to a trust, it is no longer considered part of the trustor’s personal estate. Hence, trusts are valuable succession mechanisms that permit property owners to avoid probate and ensure beneficiaries a smooth process of asset distribution upon death.
A testamentary trust is an arrangement that is only effective after the trustor’s death. As described by Florida Statutes §736.1106, the trustor provides specific directions in his or her last will to establish the trust.
Please note that the trust is not actually created until the trustor is dead and the estate is subject to court supervision.
Living Trusts vs. Testamentary Trusts in Florida – Understanding the Difference
There are two basic types of trusts in Florida – revocable trusts and irrevocable trusts. A revocable trust can be modified, amended, or revoked during the trustor’s lifetime. Once the trustor dies, revocable trusts immediately become irrevocable.
An irrevocable trust cannot be changed, amended, or revoked once the trust instrument is executed by the trustor. If the circumstances change or the trustor decides to modify the terms of an irrevocable trust, it is not possible without court intervention.
A living trust is a revocable trust in which the trustor designates him or herself as the trustee. This way, it is possible to retain control over the trust assets while waiving nominal ownership over them.
A testamentary trust does not exist until the trustor’s death. Considering this type of trust is part of the trustor’s last will, the ownership of the assets to be transferred to the trust must remain under the testator’s legal possession until he or she passes away.
While living trusts are not subject to probate, testamentary trusts created through a last will must go through probate. During probate, the court responsible for supervising the distribution of a decedent’s estate will identify whether the trust is valid.
Why Are Testamentary Trusts Useful Estate Planning Tools?
Testamentary trusts benefit parents of minor children or individuals who have loved ones with special who are not sufficiently capable to manage their own financial affairs. In such cases, the trustor can appoint a reliable trustee to administer the trust.
As the trustee can act only in the best interest of the trust’s beneficiaries, the trustor can add specific provisions in the trust instrument to establish time-release features and other specific payout mechanisms to protect the interest of the beneficiaries.
For example, it is possible to set up a specific milestone age or achievements for the release of the assets or funds held in the trust, such as college graduation or a 30th birthday.
The trustor can also structure the trust instrument to permit distribution exclusively to fulfill specific expenses, such as college tuition fees or personal health care.