Almost every estate plan can benefit from a living trust. There’s a lot to love about living trusts: they can keep your assets out of probate, allowing them to pass seamlessly to your heirs; they allow you to control and use the assets during your life, and even to place conditions on their use and distribution after your death. They’re relatively simple to update or even revoke, should you so choose.
Unfortunately, just having a living trust isn’t enough to assure you all of these benefits. There are many ways that a small error or failure to take action can render your trust less effective, or completely useless. If you’re relying on the trust to carry out your wishes, that could mean disaster for your intended beneficiaries. At the very least, it will certainly mean a legal headache. Learn how to make sure your living trust does just what you want it to by avoiding these seven problems.
Your Trust Isn’t Funded
Many a person has walked out of their estate planning attorney’s office with a sense of satisfaction that they’ve “gotten their affairs in order” by creating a trust. But creating the trust is only the beginning. A trust that is not funded is only an empty vehicle. To make it useful, you need to place assets in the trust by titling them in the name of the trust. This means changing the name on your bank account, for instance, from “John Q. Smith” to “The John Q. Smith Revocable Living Trust” or executing a deed for your house from yourself to the trust. If the prospect of funding your trust is intimidating, make a list of the assets you want to place in it and consult with your estate planning attorney as to what you need to do to fund the trust.
You Don’t Have a Pour-Over Will
Even if you’ve funded your trust, you’re almost sure to have assets outside the trust, such as after-acquired assets and personal property. A pour-over will is simply a will that directs that any property you own in your sole name at your death is to be “poured” into the trust and distributed according to the terms of the trust. This will may still have to go through probate, though, so don’t neglect to fund the trust during your life in favor of relying on the pour-over will.
You Picked the Wrong Successor Trustee(s)
Don’t pick a trustee for the wrong reasons. You will be the trustee of your living trust during your life, but you will need to name a successor trustee to administer and distribute trust assets after your death. It’s common for people to name someone they love, but love isn’t enough to make your trust effective. If your brother is terrible at managing money, don’t choose him. If your best friend has a heart of gold, but also a gambling problem, she’s not your best option. You don’t need to pick a financial genius, but your successor trustee should be diligent, smart, and ethical. And if you plan to name co-trustees, such as two adult children, make sure they can work well together.
The Trust is Outdated
To some extent, a trust is “set it and forget it.” But if your trust was created years ago, changes in the law may serve to make the trust less effective for your goals than it could be. Consult with your estate planning attorney every few years to make sure your trust is still in a format that will meet your needs. Similarly, make sure that you regularly update your schedule of assets, so a successor trustee will know what’s actually in the trust.
Your Trust Names Dead Beneficiaries (or Trustees)
Just as changes in the law can affect your trust, so can changes in your life. This one may seem obvious, but if you have named in your will a beneficiary or successor trustee who has passed away, it’s time to update your trust. You may also wish to consider if other circumstances have changed such that you no longer want a named trustee to serve, or a named beneficiary to inherit from you. Likewise, if one of your trustees has become legally incompetent due to dementia or another reason, it’s time for an update.
Your Trust Wasn’t Properly Executed
If you had your trust prepared by an experienced Michigan estate planning attorney, this is much less likely to be an issue, but many people prepare trusts using online legal services which don’t provide appropriate guidance or support. A surprising number of people forget to sign their trusts, which makes them legally ineffective. Other errors in execution, such as failing to have witnesses or to get the trust notarized, can also lead to legal difficulties down the road.
Your Loved Ones Don’t Know How to Find Your Trust
You need not share every detail of your trust with your loved ones before your death, but at a minimum, more than one person should know that you have a trust, and where to find it. Otherwise, they may assume you didn’t have an estate plan, and all your assets may end up going through probate, possibly being distributed to people other than those you intended. If you want to keep your trust private, ask your estate planning attorney to keep it on file, and let your loved ones know whom to contact in the event of your death.
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