In addition to the warm temperatures, Florida has one of the best tax climates in the United States. Florida is one of nine states that has no state income tax. Florida is also one of seven states that has no trust income tax. Consequently, people may consider moving their assets into a Florida living trust.
Why Create a Florida Living Trust?
Neither the trust nor beneficiaries who receive distributions from the trust pay Florida state or trust income taxes. However, the trust and beneficiaries may be subject to federal income tax laws. If a living trust is properly drafted, it can also be a valuable mechanism for avoiding Florida probate expenses, federal estate taxes and the reach of creditors. A person does not have to live in Florida to establish a Florida living trust.
What is a Living Trust?
A living trust is a legal arrangement whereby a person, called a "settlor," transfers legal title to property, during his lifetime, into the name of a trustee. The trustee can be a person or corporation. The trustee has a fiduciary duty to properly manage the settlor's assets for the benefit of beneficiaries named in the trust document. A living trust can either be revocable or irrevocable. A revocable trust can be changed or terminated at any time. Irrevocable trusts typically cannot be changed or canceled after the trust is created. Settlors usually create revocable living trusts when they do not want to give up control of assets or want the ability to alter the terms of the trust in the future.
How to Create a Florida Living Trust
An out-of-state settlor may create a Florida living trust by specifying in the trust instrument that the laws of Florida govern the meaning and effect of the trust's terms. If the settlor does not designate Florida as the controlling jurisdiction, the laws of the state where the settlor resides at the time he creates the trust will govern it. Additionally, before the state of Florida can claim jurisdiction over the trust, the out-of-state settlor must either transfer real property located in Florida to the trustee or the trustee or any beneficiary of the trust must live in Florida or have an office located there.
Do it Right
For good measure, a non-Florida settlor may wish to sign the trust instrument in front of three people: two witnesses and a notary public. Moreover, it may be helpful for the settlor to also hire a competent, Florida-licensed attorney to prepare the trust instrument. The attorney can ensure the trust is legally effective in Florida and not at risk of being taxed by the state where the settlor resides.