How Does a Trust Work in Florida?

A trust is a legal arrangement in which one person, called the grantor or settlor, transfers ownership of assets to another person or entity, called the trustee, to hold and manage those assets for the benefit of one or more beneficiaries. In Florida, trusts are governed primarily by the Florida Trust Code, which is codified in Chapter 736 of the Florida Statutes. At the Law Offices of Albert Goodwin, PA, we help individuals and families throughout South Florida create, fund, and administer trusts that protect their assets and carry out their wishes. Understanding how a trust works is the first step toward determining whether a trust belongs in your estate plan.

The Three Key Parties in a Florida Trust

Every trust involves three essential roles: the grantor, the trustee, and the beneficiary. The grantor is the person who creates the trust and transfers assets into it. The trustee is the person or institution responsible for managing the trust assets according to the terms of the trust document. The beneficiary is the person or persons who receive the benefits of the trust, whether in the form of income, distributions, or the eventual transfer of trust assets.

In many revocable living trusts, the same person serves in all three roles during their lifetime. A Florida resident might create a revocable trust, name themselves as the initial trustee, and designate themselves as the primary beneficiary during their lifetime. The trust document then names a successor trustee who will take over management of the trust when the grantor becomes incapacitated or dies, and it names remainder beneficiaries who will receive the trust assets after the grantor's death.

The trustee owes a fiduciary duty to the beneficiaries. Under Florida Statutes § 736.0801, a trustee must administer the trust in good faith, in accordance with its terms and purposes and the interests of the beneficiaries, and in accordance with the Florida Trust Code. This fiduciary duty includes duties of loyalty, impartiality, prudent administration, and the duty to keep beneficiaries reasonably informed about the trust and its administration.

How a Trust Is Created in Florida

Under Florida law, a trust can be created during the grantor's lifetime (an inter vivos trust) or upon the grantor's death through a will (a testamentary trust). Florida Statutes § 736.0401 sets forth the requirements for creating a valid trust. The grantor must have the capacity to create the trust, must indicate an intention to create a trust, the trust must have a definite beneficiary (with certain exceptions for charitable trusts and trusts for the care of animals), the trustee must have duties to perform, and the same person cannot be the sole trustee and sole beneficiary.

For a trust of real property or for most practical purposes, the trust agreement should be in writing and signed by the grantor. While Florida law technically permits oral trusts for personal property, a written trust agreement is essential for any meaningful estate planning purpose, including transferring real estate, managing financial accounts, and avoiding probate.

Revocable Trusts vs. Irrevocable Trusts

One of the most fundamental distinctions in trust law is between revocable and irrevocable trusts. Under Florida Statutes § 736.0602, a trust is presumed revocable unless the trust instrument expressly states that it is irrevocable. This is an important default rule that differs from some other states where trusts are presumed irrevocable.

A revocable trust, often called a revocable living trust, allows the grantor to retain full control over the trust assets during their lifetime. The grantor can amend the trust terms, change beneficiaries, add or remove assets, or revoke the trust entirely at any time. Because the grantor retains this level of control, the assets in a revocable trust are still considered the grantor's property for income tax purposes and are included in the grantor's taxable estate. A revocable trust does not provide asset protection from the grantor's creditors during the grantor's lifetime.

An irrevocable trust, by contrast, generally cannot be amended, modified, or revoked by the grantor after it is created, except under specific circumstances provided by the Florida Trust Code or by court order. When a grantor transfers assets to a properly structured irrevocable trust, those assets are generally removed from the grantor's taxable estate and may be protected from the grantor's creditors, provided the grantor does not retain any beneficial interest in the trust. Irrevocable trusts are used for a variety of purposes, including asset protection, tax planning, Medicaid planning, and charitable giving.

Funding the Trust

Creating a trust document is only the first step. For a trust to function, it must be funded, meaning that the grantor must actually transfer ownership of assets into the trust. An unfunded trust is essentially an empty container that serves no practical purpose. Trust funding is one of the most critical and most frequently overlooked aspects of trust-based estate planning.

Funding a trust typically involves retitling assets in the name of the trust. Real property must be transferred by deed, typically a quit claim deed or a special warranty deed, from the grantor individually to the grantor as trustee of the trust. Bank accounts, brokerage accounts, and other financial accounts must be retitled in the name of the trustee of the trust. For certain assets, such as life insurance policies and retirement accounts, the grantor may name the trust as the beneficiary rather than transferring ownership of the account itself.

Each type of asset requires a specific method of transfer, and the failure to properly fund a trust is one of the most common estate planning mistakes. If an asset remains titled in the grantor's individual name at death, that asset will not pass through the trust and may instead be subject to Florida probate, which is exactly what most people create a trust to avoid.

How a Revocable Trust Works During the Grantor's Lifetime

During the grantor's lifetime, a revocable living trust operates almost invisibly. Because the grantor is typically the initial trustee, they continue to manage their assets just as they did before creating the trust. The grantor can buy and sell property, open and close accounts, make investments, and take distributions from the trust without restriction. The grantor reports all trust income on their personal income tax return, and no separate tax return is required for the trust while the grantor is alive and serving as trustee.

One of the most significant advantages of a revocable trust becomes apparent if the grantor becomes incapacitated. If the grantor can no longer manage their financial affairs, the successor trustee named in the trust document can step in and manage the trust assets without the need for a court-supervised guardianship proceeding. This provides a seamless transition of management and avoids the expense, delay, and public nature of a guardianship case under Florida Statutes Chapter 744.

How a Trust Works After the Grantor's Death

When the grantor of a revocable trust dies, the trust typically becomes irrevocable by its terms. The successor trustee takes over responsibility for administering the trust according to the trust document. This administration process is the private equivalent of probate, but it occurs without court supervision and without public filings.

The successor trustee's responsibilities after the grantor's death generally include securing and inventorying the trust assets, obtaining date-of-death valuations of all trust property, notifying beneficiaries of the trust's existence and their right to receive information, paying the grantor's final debts and expenses from trust assets, filing the grantor's final income tax return and any required estate tax return, and distributing the remaining trust assets to the beneficiaries according to the trust terms.

Under Florida Statutes § 736.05055, a trustee of a revocable trust may publish a notice to creditors, which starts a limitations period for creditor claims against the trust. This is similar to the creditor notice process in probate and provides the trustee with a mechanism to cut off unknown creditor claims and protect the trust beneficiaries from late-filed claims.

The trust document controls how and when beneficiaries receive their distributions. Some trusts provide for an outright distribution of all assets to the beneficiaries after the grantor's death. Others establish ongoing trusts for beneficiaries, providing distributions over time, at certain ages, or for specific purposes such as health, education, maintenance, and support. This flexibility is one of the primary advantages of trust-based estate planning over a simple will.

Trust Administration and Trustee Duties Under Florida Law

The Florida Trust Code imposes significant duties on trustees. Under § 736.0802, a trustee must administer the trust solely in the interests of the beneficiaries. The trustee must act with the care, skill, and caution that a prudent person would exercise when dealing with the property of another, taking into account the purposes, terms, distribution requirements, and other circumstances of the trust. The trustee must keep the beneficiaries reasonably informed of the trust and its administration under § 736.0813, and must provide a trust accounting to qualified beneficiaries upon request.

If a trustee breaches their fiduciary duties, the beneficiaries have the right to seek judicial remedies under the Florida Trust Code, including removal of the trustee, surcharge for any losses caused by the breach, and other appropriate relief. The trustee can also be held personally liable for any losses resulting from a breach of trust.

Types of Trusts Used in Florida Estate Planning

Florida residents use a wide variety of trusts depending on their goals. A revocable living trust is the most common trust used for general estate planning purposes, providing probate avoidance, incapacity planning, and flexible distribution provisions. An irrevocable life insurance trust (ILIT) removes life insurance proceeds from the grantor's taxable estate. A special needs trust provides for a disabled beneficiary without disqualifying them from government benefits. A charitable remainder trust provides income to the grantor or other beneficiaries while ultimately benefiting a charity. A qualified personal residence trust (QPRT) transfers a home to beneficiaries at a reduced gift tax cost.

The right type of trust depends on the individual's specific circumstances, including the size and composition of their estate, their family situation, their tax profile, and their planning goals. An experienced trust attorney can help determine which trust structures are appropriate for a particular situation.

Why Trusts Are Important in Florida

Trusts are particularly valuable in Florida for several reasons. Florida probate can be time-consuming and expensive, with attorney and personal representative fees often based on the value of the probate estate. A properly funded revocable trust avoids probate entirely. Florida's strong homestead laws, while protective, also impose restrictions on the disposition of homestead property at death, and trust planning can help navigate these restrictions. For individuals who own real property in multiple states, a trust can avoid the need for ancillary probate proceedings in each state where property is located.

Additionally, Florida has no state income tax and no state estate tax, which makes it an attractive domicile for estate planning purposes. However, federal estate tax still applies to estates exceeding the federal exemption amount, and trust planning can be an important component of minimizing or eliminating federal estate tax exposure.

Contact a Florida Trust Attorney

If you are considering creating a trust, or if you have been named as a trustee or beneficiary of an existing trust, the Law Offices of Albert Goodwin, PA can help. We serve clients throughout Miami-Dade County, Broward County, and Palm Beach County from our office at 121 Alhambra Plz #1000, Coral Gables, FL 33134. Call us at 786-522-1411 or email [email protected] to schedule a consultation and learn how a trust can protect your family and your assets under Florida law.