Avoiding probate, or at least minimizing assets that need to pass through probate is a part of estate planning, but every person has a different situation. That is why sitting down with an estate planning attorney is an important step to take. A barrage of ads selling generic living trusts to seniors, may actually cause many families to end up in probate court. This is exactly what they were trying to avoid!
My Primetime News’s recent article, “Hazards of Living Trusts,” explains that many of these living trust programs offer incomplete estate planning packages that don’t take all the steps needed for the proper disposition of assets at death. A living trust may be needed, but there are other components to a complete estate plan. You should work with a qualified estate planning attorney to discuss other needs, such as a will. Every estate plan should include a will which, at minimum, names a personal representative (or executor) and beneficiaries. An estate plan with a trust may include a “pour-over will”—this is a catch-all for any property inadvertently missed in the trust. It designates the living trust as the beneficiary.
A will can be ignored (but should be reviewed regularly) and still be valid, but a living trust requires review and maintenance. All real estate, bank accounts, and other investments must be transferred into the trust. If you miss this step, it’s a trust with nothing in it and there’s no way to fix it. If you do not have a will, your property would pass by intestate succession.
Here are few other major errors made in living trusts that can lead to future disaster:
- You don’t create a will. Again, this is a big mistake. A will names a personal representative as well as residuary beneficiaries. If there’s no personal representative named in the will, the court may appoint a “public administrator” to be the personal representative. This will likely be a local attorney who bills the estate to act as the personal representative. He or she will likely be a stranger to the family who didn’t know the deceased and isn’t required to follow the family’s wishes.
- You don’t title the property properly in the trust. This is critical because trust property can be sold and other property purchased, that may be deeded in individual names or held in joint tenancy. If the title isn’t clear, a probate court may need to determine after death what property was in the trust and what wasn’t. Property not in the trust, will pass by intestate succession: state law determines the heirs if there’s no will.
- You mix up an irrevocable trust with a revocable trust. An irrevocable trust can’t be revoked or terminated by the person who created it, and there are limited situations when an irrevocable trust is the right option.
Unfortunately, many families who get involved with living trusts without the guidance of an estate planning attorney at Cottrell & Jacobs, find themselves spending just as much money and time trying to fix a situation, as if they met with a qualified attorney in the first place.
Reference: My Primetime News (August 1, 2017) “Hazards of Living Trusts”