In Florida, trusts are popular estate planning tools. The trust and the trust maker (designated as the “grantor” or “settlor”) are separate legal entities, as the first will hold assets on the latter’s behalf.
However, if the legal entity holds the assets, the question is – who owns the property in a revocable trust in Florida? In this sense, it is fundamental to know who owns trust property to assess the tax implications and other factors.
Keep reading to discover who owns the property in a Florida revocable trust.
Revocable Trust in Florida – Explaining the Basics
A trust is a legal arrangement in which the trust maker transfers property of assets to a trustee for the benefit of a third party (beneficiary). There are two main types of trusts – revocable trusts and irrevocable trusts.
As its name suggests, a revocable trust can be changed, amended, or revoked during the grantor’s lifetime. On the other hand, an irrevocable trust cannot be changed, amended, or revoked once it is signed by its grantor.
Upon the grantor’s death, all revocable trusts become irrevocable. A grantor may transfer several types of assets to a trust, including real estate, personal property (e.g., vehicles, jewelry), bank accounts, a company’s shares/stocks, etc.
The trustee or successor trustee (depending on the case) will manage the property held in the trust according to the provisions in the trust agreement. The trust agreement is the document that outlines the details of this legal arrangement.
A revocable trust permits a grantor to still have control over the assets within the trust by naming him or herself as the trust’s trustee. This way, it is possible to avoid probate, passing the assets to the beneficiaries outside of court.
Additionally, transferring assets to a revocable trust may mitigate one’s tax liability. Yet, it will depend on whether the trust is revocable or irrevocable. In a revocable trust, the grantor is still considered the owner of the property held within the trust, while property transferred to an irrevocable trust is not.
Who Owns the Property in a Revocable Trust in Florida? – An Overview
For legal purposes, the grantor owns the assets held within a revocable trust. Although the assets may have been retitled into the trust’s name, the grantor is still liable for reporting income or capital gains incurred by the assets within the trust.
Hence, the grantor in a Florida revocable trust must report any income or gains generated by trust property using the income tax return. Many believe that revocable trusts are the ultimate shield against creditors, but it is not true.
While revocable trusts offer some asset protection, creditors may come after property held in a revocable trust when trying to collect the assets of a trust grantor in Florida.
Instead, all property held in an irrevocable trust is owned by the trust. After signing an irrevocable trust agreement, a grantor has no ownership ties to the property held within the trust (both from a legal or financial viewpoint).
Similarly, setting up an irrevocable trust involves tax liability. However, in such a case the trustee must file a tax return for the irrevocable trust. As a separate legal entity, an irrevocable trust has its TIN (Tax Identification Number).
Consequently, any income tax owed by the trust is paid out of the trust – not paid by the trustee nor grantor.
How to Protect Property Using Trusts in Florida – Work with an Expert Attorney
It is impossible to deny trusts are useful legal tools in estate planning strategies. Yet, it is crucial to work with an experienced trust attorney to guarantee the ideal outcome.