For the year 2012-2013, statistics for the three largest counties in Florida (Miami-Dade, Broward, and Palm Beach), show 12,234 probate cases filed. Since living trusts are not required to be filed with the Florida courts following a person’s death, it is difficult to gauge the number of trusts vs. the number of wills (which are required to go through probate, therefore are public). There are significant differences between a Revocable Living Trust and a Will in the state of Florida. In order to understand those differences, it is necessary to know what a will can—and can’t—do, as well as what a living trust can and can’t accomplish as far as estate planning goes.
Will Having a Will Allow Your Estate to Avoid Probate?
Far too many people believe if they have a simple will, they have done their duty as far as estate planning, and there will be no issues following their death. Many also believe probate is not necessary if there is a will. In fact, all wills are subject to the probate process. During probate, which is a legal process, the decedent’s last will and testament is admitted to court. If the person did not name an executor or personal representative, the court will appoint one. The estate will then be inventoried, all creditors and taxes will be paid, and, eventually, beneficiaries will receive their inheritance.
Your Will and the Subsequent Probate are Public
The contents of a will, as well as how assets are divided, is open to the public, which means anyone who is interested can go to the courthouse and review probate filings. Some counties even put probate filings on the Internet. Because nearly everyone “knows someone” whose estate did not go through probate, the myth that probate is not necessary continues to grow.
Will Joint Ownership Avoid Probate?
In cases where everything was jointly owned, then all those assets immediately go to the joint owner upon the death of one owner. This precludes the necessity for probate, or even for a will. While this might sound like the ideal way to ensure your assets go to your spouse without the benefit of a will or probate, there can be problems associated with joint ownership of every asset. Some of those problems include:
- If one owner of a joint account is the subject of a lawsuit, then all the funds in the account could be subject to a judgment lien, taking some, or even all, of the funds.
- If the owner of the original account adds new owners—who contribute no money to the account—then legally the original owner may be deemed to have made a gift of a portion of the account. If the amount of this “gift” exceeds the amount allowed for gift tax exclusions, the gift must be reported to the IRS.
- If an owner of an account adds one of their children to the account but intends for all their children to inherit, he or she has effectively disinherited all the other children. Many parents add their most “responsible” child onto an account, trusting that child will “share” the account with his or her siblings upon their death. While the child who inherits the account might portion out the money as per the parent’s wishes, gift tax consequences could result.
- If the joint owner of an account happens to be a minor, then there must be a court-supervised guardianship or conservatorship established. In order to avoid this, the account could alternatively be titled in a Revocable Living Trust.
Payable-on-Death and Transfer-on-Death Beneficiaries
As an alternative to a joint account, bank accounts can be set up as “payable on death,” which means the account will pass to the beneficiary you name once you die, thereby avoiding probate altogether. A beneficiary is not the same thing as a joint account holder, who is allowed to deposit or withdraw both after your death as well as before. Checking accounts, savings accounts, money-market accounts, and CDs are all covered under a POD account. Transfer-on-Death accounts are used for stocks and investment accounts.
If there are multiple beneficiaries for an account, then the amount in the account upon the death of the account holder will be divided equally between the beneficiaries. Until the account holder dies, beneficiaries have no claim on the funds in the account. A federal district court in the state of Florida found that POD benefits were not strictly limited to people, rather a charitable institution, business organization, municipality or partnership could also be named. A death certificate must be presented to the bank in order for the beneficiary to claim the funds.
In the event, a designated beneficiary dies prior to the owner of the account, and there are no other named beneficiaries, then the account will be deemed a part of the estate, and must go through probate. Some banks require that beneficiaries listed on a POD or TOD account be designated equal shares, which would preclude the owner of the account ensuring specific amounts were given to specific beneficiaries.
What is a Revocable Living Trust?
While a will is useful only after you die, a revocable living trust can help you out during your lifetime as well. The biggest myth associated with revocable living trusts is that once established, you lose all control over the assets placed in the trust. This is simply not the case. A revocable living trust is essentially a legal agreement made between the Trustee (you) and the Settlor (also you) which spells out how assets in your trust will be held, invested, and distributed both during your lifetime and after your death.
A revocable living trust can be changed or amended at any time. Basically, once the revocable living trust is created, you will transfer most of your assets into the trust. Any assets which are not part of your revocable living trust become part of your estate which must go through probate. For this reason, it is extremely important that the titles on bank accounts and deeds to real estate indicate the trust as the owner.
How a Trust Can Help in the Event of Incapacitation
When a Trust is set up, a successor trustee will be named who is authorized to write checks, pay bills and generally manage your investments should you become disabled or incapacitated. Some people will name their spouse or child as the successor trustee, while others will name a bank or other financial institution. Legal incapacity will be defined in the trust document itself and will require a statement in writing from two medical physicians which indicates you are unable to take care of your legal affairs. The language in the revocable living trust allows the successor trustee to take over without the necessity of obtaining a court order while protecting the trustee by requiring two physician statements of incapacity.
Advantages of a Revocable Living Trust Over a Will
A person who has a revocable living trust may also have a will, which is known as a “pour-over will,” meaning it “pours into” your trust upon your death. One of the advantages of a revocable living trust as opposed to a will, is that upon your death, all the details of what you leave to who are private. A will must go through probate, therefore becomes a public document. Most of the requirements a successor trustee must satisfy following the decedent’s death do not require court filings. As an example, an inventory of all assets must be filed during the probate of a will, however, no such inventory is required with a revocable living trust. Those who own real estate in states other than Florida will appreciate a revocable living trust over a will since an attorney in the other states can prepare a deed that transfers the property into the Florida revocable living trust. This avoids probate in both states, allowing for a quick sale or distribution of the real estate. A revocable living trust allows you to buy additional real estate at any time during your lifetime, in the name of the trust, whether in Florida or outside the state.
It is much more difficult for heirs to contest a revocable living trust than it is for them to contest a will, plus it is much quicker to make beneficiary distributions with a revocable living trust than with a will. The successor trustee can sell the property and make those distributions quickly after the decedent’s death, as opposed to the several months to as long as two years it could take to complete the probate process. Both a revocable living trust and a will allow a person to name beneficiaries for assets, however, whether property can be effectively left to minors with only a will is debatable, and the assets must be managed by an adult. When leaving property to a minor through a revocable living trust, the named trustee will take care of the assets until the child reaches an age determined by you.
Both wills and revocable living trusts can be revised at any time. A revocable living trust requires a notary public to witness signatures, while a will does not (although a self-proving will includes affidavits and signature notaries). While you can name guardians for your minor children in a will, you cannot do so in a revocable living trust. In this case, you will want a will as well as a trust; the guardian for your children will be named in your will, while your successor trustee will manage the financial aspect of taking care of your minor children. It is generally considered better to separate guardianship and finances for minor children; the person who you deem the best to raise your children in the manner you would want is seldom the same person you would trust to ensure the financial aspect of taking care of the children is properly managed.
In your will, you can also leave instructions as to how you would like your taxes and outstanding debts paid or even to forgive debts that are owed to you. These issues should not be addressed in a revocable living trust. Wills are much simpler to prepare, and must be witnessed by two people and signed by you, the will-maker. Handwritten wills are not accepted in the state of Florida, and neither are oral wills, even if the will is videotaped. A revocable living trust tends to be more complex than a will, although there is nothing that dictates they must be complicated. Neither a living will or a trust will reduce estate tax, however, this is not an issue for most folks—only those with significant levels of wealth. One issue to note—passwords for online accounts should be in a separate document than your will or your living trust, kept in a secure place with other estate planning documents.
Should I Have a Will or a Living Trust?
Most everyone needs a will, however, not everyone needs a revocable living trust. You and your Florida estate planning attorney will determine whether you require a revocable living trust based on your level of assets, your age, and your marital status. Even if you decide you do need a revocable living trust, you should also have a will that will name an executor, name guardians for your children, and address any property which does not end up in your trust. If you die without a will or a living trust, the state of Florida will distribute your assets according to state laws. A living trust is typically more expensive to set up than a more traditional will because it requires some level of management after its creation. In the end, only you and your Florida estate planning attorney can make the determination as to whether you need a revocable living trust or whether a will is sufficient. It is always better to have this conversation before tragedy strikes and it is too late.