Florida Trusts: Background
A trust is an entity into which the Settlor places assets in the hands of the Trustee, who manages and controls the trust corpus. A trust is established for the benefit of the beneficiaries, who can be the Settlor of the trust, and also for the benefit of others, often spouses, children, and other beneficiaries.
Types of Trusts
Revocable trusts: also known as a living trust, or a revocable living trust. The settlor can revoke the trust during the settlor’s lifetime.
Irrevocable trusts: typically trusts over which the Settlor gives up the right to distribution from the trust. These can include Dynasty trusts, Life Insurance trusts, and similar types of trusts.
Distributions from the Trust
If the trust is a Revocable Trust, while the Settlor is alive, the Settlor can pretty much do as the Settlor pleases, such as distribute any amount from the trust to anyone including the Settlor.
When the Settlor is still alive but no longer the Trustee, the Trustee must follow the distribution pattern of the trust. Typically, while the Settlor is alive, all distributions may be made only to or for the benefit of Settlor. In some instances, the Settlor’s spouse is included as a beneficiary, and in other cases, the children of the Settlor are included as permissible beneficiaries.
After the death of the Settlor, the rules of distribution from the trust have their highest importance. The first issue is whether the trust is fully distributed following the death of the Settlor, or the trust will be administered on an ongoing basis (“in further trust”).
Management of the Trust
A trust is managed and controlled by the Trustee. The Trustee has a number of duties and obligations to the beneficiaries of the trust, including the Duty of Loyalty, a duty to administer the trust prudently, and an obligation to invest trust assets wisely.
Trust Tax Issues
While a trust is revocable, the Settlor pays all income taxes generated by the trust.
Once a trust is not revocable, the trust pays tax, or the beneficiaries pay tax, depending on what was distributed out of the trust.