If you’re considering creating a living trust, there are some things you should know about the tax implications after you pass away. Learn more about Florida living trusts and taxes below.
What Is a Revocable Living Trust?
A revocable living trust is a fiduciary arrangement where the grantor names themself trustees and can manage, amend, or revoke the trust during their lifetime. They also stipulate a successor trustee to administer the trust when they pass away.
Benefits of a revocable living trust include:
- Assets bypass probate for immediate administration by the successor trustee.
- Revenue is taxed at a lower rate for revocable trust assets than irrevocable trust assets.
- You may avoid or minimize estate taxes.
You must still file trust income taxes for earnings on trust assets. You may need to register for a government-issued TIN for your revocable trust tax filings. If you register for a TIN during your lifetime, the successor trustee must apply for a new one after you pass away to administer the trust properly.
What Is the Difference Between Revocable and Irrevocable Trusts?
The grantor must name another person or entity as the trustee to create an irrevocable trust, giving up their right to personally manage the trust assets. Living trusts and taxes are different between revocable and irrevocable trusts.
Benefits of irrevocable trusts include:
- Assets bypass probate after death
- Asset protection from creditors and lawsuits during the grantor’s lifetime
- Separating assets from ownership by the grantor and passing them into ownership by the trust
- Reducing or minimizing estate and capital gains taxes
The income tax implications for an irrevocable trust are higher than for a revocable living trust. You should consider an irrevocable trust if you need asset protection or are in the early stages of Medicaid planning for long-term care.
Does an Estate in Florida Have to Pay Taxes During Administration?
A revocable living trust becomes irrevocable when the grantor passes away, leaving the successor trustee to administer the estate according to the trust agreement. To administer the trust, the new trustee must:
- Notify the grantor’s beneficiaries of their role as trustee
- Inventory the assets held in trust
- Notify institutions and creditors of the grantor’s passing
- Pay taxes owed by the trust
- Distribute the assets to the named beneficiaries
You can avoid paying estate taxes entirely if the value of your estate falls below the threshold. You can also help your beneficiaries bypass the generation-skipping tax if you intend to have grandchildren inherit from your trust.
Speak with an experienced estate planning attorney about your estate and goals for your beneficiaries to determine the proper trust structure.
Contact a Knowledgeable Florida Estate Planning Attorney in Winter Haven
For help learning more about living trusts and taxes in Florida, turn to the experienced legal team at the Law Office of Amy L. Phillips, PLLC. Call us today at 863-268-8292 or online to schedule a consultation about estate planning, trusts, and taxes.