Estate planning is an essential aspect of anyone’s life. In this sense, establishing a trust may be the ideal solution to several issues, including avoiding probate, safeguarding beneficiaries, and protecting assets from creditors.
Before establishing a trust, it is crucial to know the most suitable choice and how to use it strategically within a well-structured estate plan. In this article, you will have a full guide on irrevocable trusts in Florida.
What is an Irrevocable Trust? – The Definition
An irrevocable trust is a legal arrangement in which a grantor (the person creating the trust) transfers property to a trustee to benefit one or multiple beneficiaries. However, unlike a revocable trust, it is not possible to change or revoke an irrevocable trust after it is created.
Once the trust maker has signed the trust agreement, there is no way to change its provisions. Consequently, the grantor cannot add or remove beneficiaries, nor alter/amend the terms in the document.
Most importantly, once an asset is titled in the name of an irrevocable trust, it is no longer part of the grantor’s estate. Hence, the grantor cannot take the property back after transferring it to an irrevocable trust.
It is crucial noting that setting up an irrevocable trust requires a well-designed strategy and a thorough reflection regarding the assets to be transferred into it. The grantor must be aware that, after transferring property into the trust, there is no way to reverse the decision.
Florida Irrevocable Trusts – Possible Use Cases
When compared to revocable trusts, irrevocable trusts have fewer use cases and a stricter scope of action. However, if used strategically, these legal arrangements are valuable tools to solve specific issues.
Primarily, irrevocable trusts are used to reduce estate taxes. Once transferred to an irrevocable trust, an asset is no longer part of the grantor’s taxable estate. Consequently, the assets held in an irrevocable trust pass to the beneficiaries without exposition to estate taxes.
Yet, using an irrevocable trust as a tax reduction strategy may be a solution only in cases involving wealthy individuals (considering it involves giving up control of an asset). Additionally, irrevocable trusts are still subject to gift taxes.
As provided by the Internal Revenue Service (IRS), a grantor makes a gift he/she transfers property, or the income from property, into an irrevocable trust without expecting to receive something in return.
Other use cases for irrevocable trusts include asset protection from creditors and situations involving Medicaid, life insurance, and other similar benefits.
Florida Irrevocable Trusts – Asset Protection
In Florida, state law guarantees that property held within an irrevocable trust enjoys protection against creditors of the trust beneficiaries. However, to guarantee its enforceability in court, a well-drafted irrevocable trust agreement must include a spendthrift clause.
The idea of a “spendthrift” protection clause is that the creditors of a trust’s beneficiary cannot force him/her to do involuntarily what it could not be done voluntarily under the irrevocable trust agreement.
Consequently, creditors cannot force a beneficiary to an irrevocable trust to involuntarily assign assets to settle debt when the trust agreement prohibits the voluntary transfer or assignment of assets to a third party.
When drafting the irrevocable trust agreement, it is crucial to expressly restrain the transfer of a beneficiary’s interest in the trust – both voluntarily and involuntarily to guarantee asset protection against creditors.
What is an Irrevocable Trust in Florida? – Make the Best Use of It by Seeking Professional Guidance
Deciding whether or not creating an irrevocable trust is the ideal choice for your case requires an expert approach. Waste no time with uncertainty – call Attorney Romy B. Jurado today at (305) 921-0976 or email [email protected] to schedule a consultation.