A revocable trust is a document (the trust agreement) created by you to manage your assets during your lifetime and distribute the remaining assets after your death. The person who creates a trust is called the grantor or settlor.
The person responsible for the management of the trust assets is the trustee. You can serve as trustee, or you may appoint another person, bank or trust company to serve as your trustee. The trust is revocable since you may modify or terminate the trust during your lifetime, as long as you are not incapacitated.
In Florida, the trust assets are not protected from the claims of your creditors. During your lifetime, the assets in a revocable trust are treated as owned by you, and subject to the claims of your creditor as if you owned them in your personal name. If the trust assets remain in trust after your death, the interests of the beneficiaries may be protected from their creditors by a spendthrift provision in the trust agreement. Florida law provides special protection for many types of assets, including assets owned by a husband and wife as tenants by the entirety. Consideration should be given to these assets when you decide how to fund your revocable trust. Your attorney can advise you on the types of assets that offer creditor protection and the effect of funding your trust with them.
In most instances, the revocable trust is ignored for federal income tax purposes during the grantors lifetime. The income and deductions are reported directly on your individual income tax return. The trust will use your social security number as its tax identification number.
A revocable trust becomes a separate entity for federal income tax purposes when it becomes irrevocable, or stops reporting income under your social security number for any other reason. The trustee is then required to file an annual fiduciary income tax return. Taxable income, deductions and credits are determined in much the same way as for an individual. Trusts are also allowed a deduction for distributions to beneficiaries. In this way, the trust passes on income and deductions to the beneficiaries to be taxed on their personal income tax returns. Income that is not distributed to the beneficiaries is taxable to the trust.
Interested in learning how VanMiddlesworth, P.A. can help you with your trusts needs? Give us a call at (727) 821-2006 to schedule your free initial consultation.