Does it matter how you hold title to property?
By Attorney Truman Scarborough
This is the third in a series of articles on the different ways title to property can be held. In the first article the various aspects of an individual holding title in just his/her name were discussed. In the last article we looked at several ways property could be held with other people and some of the advantages and disadvantages.
Property does not have to be held in individual names. It can be placed in a corporation, a Limited Liability Corporation (LLC), a general partnership, different types of Limited Partnerships, and various kinds of trusts. Just like a natural person, these legal entities have the right to own property, enter into contracts, and sue in the courts. Many of these are created for business purposes. Some of these, like the Limited Liability Corporation (LLC), the Limited Partnership and Irrevocable Trust provide additional protection from creditors. Others offer estate planning opportunities. For example, probate can be avoided with a Revocable Living Trust simplifying the settlement of an estate.
When someone dies assets titled just in the decedent’s name without beneficiaries are frozen. A Power of Attorney is effective only while the creator is living. An order from the probate court is needed to access assets in the decedent’s name. Beneficiaries in probate do not normally receive their inheritance until the end of the probate process. If everything runs smoothly in formal administration, it takes approximately six months from the time pleadings are first filed with the court. With a Trust, no court authorization is required. The successor trustee you name has immediate control of your assets after you are gone to pay bills and make distribution to beneficiaries. It is similar to a corporation, where if the president dies, his successor immediately has control.
To avoid the probate process, the trust must come into existence while you are living. Therefore it is called an “inter-vivos” or “living trust”. Assets must be transferred into the trust. If I build a shed to keep my tools dry, but forget to put in the clippers, the shed won’t protect them from the weather. In a like manner, if I fail to transfer assets into the trust that should be in the trust, they will have to go through probate.
While you are living, the trust is simple to manage. Initially either you, or you and your spouse, will be the trustees and beneficiaries. Similar to a corporation where you are the only shareholders and the only officers, you are responsible to no one else. You are free to buy, sell, gift, or do anything you want with your property. The IRS does not see this as a separate taxable entity. You will continue to use your social security number and file a regular 1040 tax return.
In addition to avoiding probate, a trust simplifies matters if you become incapacitated. If a husband and wife are the initial co-trustees and one becomes incapacitated, the other continues as sole trustee. If neither spouse is competent to act as trustee, the person you have designated steps in and manages the trust assets for your benefit, avoiding the need for a guardian. Guardianships should be avoided if possible. First, there is the unpleasant court process of establishing incapacity, and then every year thereafter the guardian must report to the court.
For further information you may be interested in Attorney Truman Scarborough’s Booklet on Estate Planning in Florida. It is available without charge or obligation by calling (321) 267 – 4770. His office is located at 239 Harrison Street, Titusville, Florida.