What Is the Purpose of a Trust?
Trusts primarily help avoid probate, preserve privacy, and protect assets from guardianship and creditor claims. Probate in Florida can be time-consuming, costly, and complex, making trusts a key tool for minimizing legal frustrations. A trust provides a private, structured way to manage and distribute assets both during life and after death, while keeping family affairs out of the court system.
What Is Trust Funding and Why Is It Important?
Trust funding refers to ensuring that assets are owned by the trust or payable to the trust upon death. Without proper funding, a trust cannot accomplish its intended purpose. Assets must be actively “poured into the trust” to direct them toward intended beneficiaries.
Proper trust funding is the foundation of effective estate planning, as it ensures that assets flow into the trust seamlessly, avoiding probate, and fulfilling the trust’s goals.
Trust Funding for Individuals
For a single individual with a trust, assets such as bank accounts, investment accounts, life insurance, and non-qualified annuities should be owned by or payable to the trust.
- Bank and investment accounts can remain in the individual’s name but designated payable on death (POD) to the trust, allowing automatic transfer upon death.
- Life insurance policies and annuities should be payable to the trust.
- IRAs and retirement accounts require careful handling due to tax implications and federal rules like the SECURE Act. Proper language in beneficiary designations is necessary to maintain creditor protection and optimize tax treatment.
Combining a trust with a power of attorney ensures that assets can be accessed and managed appropriately during the grantor’s lifetime. The agent under the power of attorney often mirrors the trustee, both holding fiduciary duties.
Trust Funding for Married Couples in Florida
Florida law recognizes tenants by the entirety, allowing married couples to jointly own property. Key features include:
- Automatic ownership transfer to the surviving spouse upon death
- Protection of joint assets from individual creditors
- Joint liability in specific circumstances, such as both spouses being liable for injuries on jointly owned rental properties
Because of these protections, married couples generally should not transfer assets directly into a trust while alive, as doing so could eliminate tenants by the entirety protections. Instead, assets are often left jointly owned with POD designations to the trust, ensuring that they transfer into the trust upon death.
Homestead Property and Ladybird Deeds
For homestead property, Florida law places restrictions on transfers during life. A Ladybird deed, or transfer-on-death affidavit, allows property to remain outside the trust until death. Benefits include:
- Preserving spousal and homestead protections
- Allowing refinancing, home equity lines of credit, or sale without trust interference
- Ensuring property is automatically transferred into the trust after death for proper distribution
Special considerations apply for households with minor children, requiring careful planning to comply with Florida’s homestead laws.
IRAs and Trust Funding Challenges
Funding IRAs to a trust is more complex due to federal rules and creditor protection. Key considerations include:
- Florida provides creditor protection for inherited IRAs, unlike most states
- Proper language in trust documents allows assets to flow through an accumulation trust, protecting beneficiaries from claims
- Misnaming the trust as a beneficiary can trigger unfavorable tax treatment under the SECURE Act, including accelerated payouts and higher trust tax rates
Correctly funding retirement accounts ensures asset protection, tax efficiency, and proper distribution to beneficiaries.
Trust Funding Process and Best Practices
Marshall Law guides clients through a structured funding process:
- Detailed asset review – clients provide values and account information to receive specific instructions.
- Step-by-step funding instructions – for each asset type, including bank accounts, investment accounts, life insurance, annuities, and IRAs.
- Follow-up reminders – letters are sent at three intervals after signing to ensure trust funding is completed.
- Direct support with advisors – financial advisors or custodians are contacted when necessary to ensure proper transfer.
Trust funding is not a one-step process. Assigning assets to a trust without proper instructions or oversight is insufficient and may lead to probate or mismanagement.
Conclusion
Trust funding is a critical aspect of estate planning, ensuring that assets are protected, distributed according to your wishes, and shielded from probate and creditors. For individuals and married couples, proper planning and execution are essential to maintain protections under Florida law.
For assistance with trust creation, administration, or funding, contact Marshall Law at (352) 820-6526 or visit marshalllawpa.com. Correctly funded trusts guarantee that your legacy is preserved, assets are protected, and beneficiaries receive exactly what you intended.