Articles Posted in Types of Trusts

Interest rates are currently at an all-time low, making it an imperative time to consider all the potential estate planning options that you may have.  Low interest rates provide an advantageous opportunity to utilize grantor-retained annuity trusts, also known as GRATs.  GRATs are an instrument used to transfer appreciating assets, or assets that become more valuable over time, such as securities, real estate, or private equity investments.  Generally, GRATS should be utilized when interest rates are low because they operate by freezing the value of the property transferred to the trust. As a result, future appreciation of the asset will transfer free of estate tax for the named beneficiaries of the grantor.  This type of trust allows you to save a lot of money if the trust is set up properly and is set up at the correct time.

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A will cannot always handle the wide range of issues that arise when planning your estate. A revocable living trust, commonly called a living trust (or “inter vivos trust”), is created during your lifetime and allows you to create a plan to manage your assets and protect you when you fall ill or even as you age. Because the Living Trust, governed under Chapter 736 of the Florida Statutes (the “Florida Trust Code”) is revocable, you also have the power to revoke or amend it throughout your life.
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Charitable donors are frequently in pursuit of a means for establishing a lifetime philanthropic legacy and effective estate planning. The utilization of a charitable trust provides a strategic option. The donor may choose to set up a trust during his or her lifetime (termed an “inter vivos” trust) or a trust set up to take effect upon death under a will (termed a “testamentary trust”).
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Based on Florida’s statutory scheme, it would seem that a Florida court, given the same underlying facts, would reach the same result as the Massachusetts court in Marsman. If a life beneficiary-on the verge of being destitute-requested a distribution from a trust with a clause that directed the trustee to make distributions that the trustee, in his or her discretion, deems necessary for the life beneficiary’s support, taking into account the life beneficiary’s income from all sources known to the trustee, a trustee under Florida law would presumably be duty-bound to make a distribution. Because the trustee would be required to “administer the trust in good faith, in accordance with its terms and purposes and the interests of the beneficiaries,” it would seem that a failure to distribute funds would be an abuse of the trustee’s discretion. Clearly the trustee would be required to look at the financial situation of the life beneficiary to ascertain whether a disbursement was needed in order to “support” the life beneficiary. Upon discovering that the life beneficiary was destitute, a failure to invade the corpus and disburse funds would likely violate § 736.0803, Fla. Stat. Many settlors incorporate language into the applicable “support clause” that states something to the effect of “even to the exhaustion of the trust,” in order to ensure that the trustee has the discretion to completely disburse the trust’s assets if needed to support the life beneficiary.
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What happens if the life beneficiary contacts the trustee and demands that the trustee invade the trust corpus and distribute funds for the life beneficiary’s maintenance and support, but the remainder beneficiaries object? Aside from being bound to “administer the trust in good faith” and “act impartially in administering the trust property,” the Florida legislature gives trustees little guidance as to what the best course of action is. The potential issues that the trustee faces include the following: (1) what level of maintenance and support is the surviving spouse entitled to; (2) must the trustee consider the standard of living that the surviving spouse had at the time the trust was created, at the death of the settlor, or at the time of the request; (3) how searching must the trustee’s review of the life beneficiary’s other assets be; (4) what situations must the trustee must distribute funds to the surviving spouse; and (5) are there certain situations where funds cannot be distributed to the surviving spouse?
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When creating a trust as part of one’s estate plan, it is not uncommon for the settlor to include provisions designed to provide support for a spouse or other loved one for the remainder of his or her life, with the remaining trust assets going to the settlor’s children, or another designated beneficiary. These “support trusts,” as they are commonly referred to, will give the trustee the discretion to invade the trust corpus in order to provide for the “health, education, maintenance and support” of the “life beneficiary,” when in the trustee’s discretion it is appropriate. Then, upon the death of the surviving spouse, whatever is left of the trust corpus will go to whomever the settlor designates as their “remainder beneficiary.” Additionally, many of these support trusts specify that the trustee, in exercising his or her discretion, should look to the other assets that the life beneficiary has available to determine whether additional invasions of the trust corpus are needed to provide for their “health, education, maintenance, and support.”
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Different types of trusts offer varying levels of protection from creditors, and just because an individual is the beneficiary of a trust containing a significant amount of assets, does not mean that creditors of that individual will be able to go after those assets if the individual fails to pay his or her debts. Mr. and Mrs. Zlatkiss found this out the hard way when they loaned $350,000 to All American Team Concepts, LLC. Louis Steinmetz, the company’s principal, signed a personal guaranty on behalf of All American Team Concepts, which seemed like a safe bet to the Zlatkisses due to Steinmetz’s trust worth over $6 million. The trust, however, contained a spendthrift provision, which, if valid “prevents creditors or assignees of the beneficiary from reaching any of the trust funds until they are dispersed to the beneficiary.” Zlatkiss v. All American Team Concepts, LLC, 2013 WL 2359108 (Fla. 5th DCA May 31, 2013) (citing Miller v. Kresser, 34 So. 3d 172 (Fla. 4th DCA 2010)). Once Steinmetz defaulted on the loan, the trustee of Steinmetz’s trust, Wells Fargo, refused to make distributions to cover the debt. The Zlatkisses claimed that Florida Statute sections 736.0501-.0507, which recognize the enforceability of spendthrift trusts, violated the Florida Constitution by preventing access to the courts. Florida Statute § 736.0501 provides that “the court may authorize a creditor or assignee of the beneficiary to reach the beneficiary’s interest by attachment of present or future distributions to or for the benefit of the beneficiary or by other means.”
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A special-needs trust, also known as a supplemental-needs trust or a disability trust, is a trust established for an individual with a disability who qualifies for government benefits from that disability, in order to provide income supplemental to the government benefits without rendering the individual ineligible for the benefits. Special-needs trusts are an important tool because, once a person has a certain amount of assets, he or she will become ineligible for his or her government benefits. However, a friend or relative of a disabled individual, or that individual him or herself, may want to ensure that there is sufficient income available in order to maintain a certain quality of life. A relative of an individual with special needs may also be interested in establishing a special-needs trust because the monetary costs of that person’s care can be high, particularly on an extended or long-term basis.
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In the past few years, a number of states, such as Nevada, Alaska, and South Dakota, have enacted legislation that permits the use of self-settled or “asset-protection” trusts. Basically, these trusts allow a person to be the beneficiary as well as the grantor in a trust. As the name implies, these trusts are usually implemented to legally shield debtors from claims by creditors, or at the very least, to provide a deterrent against creditor claims. However, given public policy concerns, these trusts may have a hard time being respected by courts and actually providing asset protection. Critics note that domestic trusts are still domestic. Consequently, judgments in other states must be honored by the state in which the trust is located and a trustee can potentially be compelled to give up the trust’s assets as a result of such a judgment. Classically, this has not been much of a concern for these trusts’ foreign counterparts. Judgments rendered by U.S. courts have little to no weight in foreign jurisdictions. As a result, a creditor would have to separately pursue a claim and obtain a judgment in the foreign jurisdiction, which usually has highly unfavorable creditor laws, if it wants to reach the assets of a foreign trust. This makes it not only extremely difficult, but also expensive and time consuming, to obtain a judgment to get the assets in a foreign trust.
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