Presented by: Bradford & Holliman, Estate Planning
“Hindsight is 20/20” and here’s how to avoid a big “gotcha” with revocable living trusts in estate planning.
One family was so grateful their mother had created her revocable trust 18 years ago. As the mother’s health worsened, the daughter named as the co-trustee managed her mother’s finances, caregiving services, and other long-term care for many years. The trust became irrevocable when the mother died, and the daughter/trustee distributed the trust estate much faster with no probate process. The mother’s assets also did not become public record. The mother intentionally gave her daughter this authority because she knew her daughters might argue over the way she wanted things done. The mother knew her daughters well and the trustee was able to sell, give away, and distribute property without a great deal of hassle or legal battles. In short, the estate plan worked exactly as the mother wanted.
In contrast, I recall families who fell victim to a major “gotcha” after setting up trusts. They didn’t follow through on one of the most important aspects of the trust – making certain the assets are “in the trust” which means that the assets are titled to the trust. When you sign trust documents, your job of “funding the trust” is just the beginning. If you haven’t already gathered account and beneficiary information for all your assets, now is the time to get busy. After all, you know best what you own.
Beneficiaries of investment accounts, life insurance policies, 401Ks, and IRAs should be reviewed for accuracy and compliance with your estate plan. These assets can pass “outside the will”, but a trust can divide assets more evenly among several heirs. Real estate titles with joint tenants with right of survivorship also pass “outside the will.” If not titled correctly, you’ll have to calculate carefully to keep the cost bases of items in and outside of your trust equitable, and you may be forced into probate.
Burial plots, cars, trucks, and recreational vehicles are often overlooked and not properly placed in the trust through their titles. Most estate plans with a trust also have a “pour-over will” to distribute any assets that were accidentally left outside of the trust, but it triggers the probate process and makes all the work and cost of setting up the trust less effective.
If you have any questions, talk to your estate planning lawyer who knows the full scope of your individual and family situation.
-Melanie B. Holliman, JD
Partner at Bradford & Holliman
Estate Planning, Trusts & Special Needs
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