Revocable living trusts.
Irrevocable living trusts.
Special needs trusts.
Constructive trusts …
You may have heard of these trusts.
But there may be some trusts you have not heard of.
Today, we are going to discuss 2 trusts you may not have heard of.
What are they?
Read on and see.
But before we get to the mystery trusts, let’s review some trust basics.
What is a Trust?
A Florida trust is a legal document that sets out the terms of an agreement in which the owner of property (the “grantor,” “settlor,” “trustor” or “trustmaker”) transfers the legal ownership of that property to a third party (the “trustee”) to manage and control the property for the benefit of the beneficiaries (this can be anyone of the grantor’s choosing, even the grantor himself/herself).
One common example of a trust is a revocable living trust. A revocable living trust is a trust set up by the grantor to manage his/her assets during the grantor’s lifetime. The trustee can be either the grantor himself/herself, or someone else appointed as trustee. At the time of the grantor’s death, the trustee (or successor trustee) is responsible for the paying all taxes and debts and distributing the assets of the trust in accordance with the trust agreement’s terms.
Florida trust agreements are private documents. They are not recorded in the public records, and they are not filed with any government agency.
Estate Planning and Trusts
In estate planning, trusts are a versatile and important estate planning tool. They can be adjusted to meet the specific needs and situation of an individual grantor or his/her beneficiaries, which makes them a very flexible estate planning tool. Trusts can also be used for tax planning purposes.
Because of this, as you might expect, there are different categories of trusts as well as different kinds of trusts to serve different needs and purposes.
Here are 2 types of trusts you may not have heard of.
Generation Skipping Trust
Considered a “deceptive and deadly tax with which to reckon,” the generation skipping tax (“GST”) rate is imposed on property transfers made from one generation to another generation which is two or more generations below the transferor’s generation. The GST is one of the highest tax rates and it is separate from, and in addition to, estate tax rates.
The current GST tax rate is calculated at a flat rate of 40% on transfers over the lifetime GST tax exemption amount. For 2022, each individual is allowed a $12.06 million lifetime GST exemption.
If, at the time of your death, you skip over your children and leave some or all of your estate to your grandchildren, then your estate will have to pay the expensive GST tax. Your estate will also have to pay GST tax if you leave an inheritance in trust for your child and your child dies after you, but before receiving the full inheritance, and the trust’s terms require the remaining amount should go to your child’s children (i.e., your grandchildren). GST tax also has to be paid if you leave assets to a nonrelative who is more than 37 ½ years your junior.
In a properly set up generation-skipping trust, the trust assets can “skip” the generation directly after the grantor (whether that is grandchildren or a nonrelative more than 37 ½ years younger than the grantor) without paying GST tax. However, any generation-skipping trust distributions that are above the exemption threshold would still be subject to the 40 percent GST tax.
The GST tax is complicated and difficult to understand. And so are generation-skipping trusts. So if you want more information or believe a GST trust would benefit you, please consult with an experienced estate and probate lawyer for more information.
Credit Shelter Trust
For married couples, credit shelter trusts can be an important estate planning tool.
A credit shelter trust allows each spouse to have a separate taxable estate. It is created upon the passing of the first spouse. The terms of the trust are set up so as to provide the surviving spouse with a life estate instead of a direct inheritance, and the couple’s children become the trust beneficiaries upon the death of the surviving spouse.
Although there is no estate tax in Florida, a credit shelter trust is a powerful tool for protecting assets from federal estate taxes. In addition, a credit shelter trust allows for flexibility in distribution while protecting the surviving spouse’s assets.
Customized Estate Plans in Florida
If you have estate planning needs, protecting your family is just one phone call away. At SJF Law Group, we create estate plans as individualized as you are. We expertly guide individuals through the complex probate process, and capably handle all aspects of the creation, administration, and settlement of trusts as well. Connect with us on Facebook or Instagram or call us at 954-580-3690.