Revocable living trusts: 5 common mistakes - Saipan Tribune
Revocable living trusts: 5 common mistakes
If you’ve been reading these columns for a while, then you know that a revocable living trust is generally a better tool than a last will and testament for transferring property to your loved one’s when you pass away. For example, property held in a trust does not need to go through probate (a court-supervised process for identifying assets, paying debts, and then distributing what remains to your heirs). By contrast, property passed through a will needs to go through probate. And that can take a year or more to finish—and involve attorney fees. But while revocable trusts can be a powerful tool, they are not error-proof. Below are five mistakes to avoid.
The first, and most common, mistake people make is to leave assets out of their trust. For example, if you own land and you want the land to transfer according to your trust agreement, then you need to execute a deed from you to the trust saying that the trust now owns the property. And the same, for instance, if you own jewelry that you want to put into the trust. You’ll need to sign a bill of sale from you to the trust documenting that the trust owns the jewelry.
Why is forgetting to transfer ownership a problem? Because assets that are not formally transferred into the trust are not part of the trust. So they’ll need to go through probate. And at the end of that process, the property might not go where you expect because the rules for transferring property in a probate may not match the wishes that you wrote in your trust agreement.
But not to worry: To make sure that the property gets to the right price, it’s common for a person with a trust to also have a short will known as a pour-over will. This type of will basically says that any property left in your personal name when you die will transfer to your trust following probate. So, even if you miss some property, it will eventually find its way into your trust.
A second mistake is forgetting to choose a successor trustee—the person who will manage the trust after you pass away or become disabled. When the position is left vacant, it’s usually because a person figures that nothing will happen to them in the near term, so they procrastinate. But if the trustee post remains vacant when the anointed time comes, expect headaches for your loved ones as they navigate that decision for you.
A close cousin of not picking a successor is picking that person poorly. A common reason for that is to choose someone just because they are your friend or the oldest child. That kind of relationship helps but it’s just one piece of the decision-making calculus. More important is that the person is smart and reliable. The last thing you want is a successor trust who ruins your well-laid plans because they didn’t or couldn’t follow your instructions.
The next mistake is to believe that a revocable living trust is the only estate-planning document that you need. It’s not. Along with a revocable living trust, you’ll want a variety of documents addressing what happens if you become incapacitated. For example, who will control your finances? Who will make medical decisions for you? And what do you want to happen if you are near death at the hospital?
The final mistake for today is to set up your trust and then forget to review it again. The reality is life is always changing in big ways and little. People die. Relationships form and fade. Property is bought and sold. And on and on. Sometimes this constant flow of change will warrant revisions to your trust agreement or other estate-planning documents. Other times nothing needs to change. But you’ll want to double check your estate-planning documents every year or so to confirm that your plan still makes sense.