Living Trust or Living Nightmare?
Living trusts can be an excellent tool that you can use to secure your family’s future. When used properly, they can prevent your assets from going through probate, thus eliminating time and expense for your loved ones. When used poorly, however, they can literally become a living nightmare for your family.
Not Funding the Trust
What is the most common issue with trusts? Not properly funding them! This means that assets are not transferred to the trust properly and/or some of your beneficiary designations did not list the trust as beneficiary. This can cause a massive headache for your loved ones after you pass.
Case Study
Recently, I have assisted a client whose parents both set up separate trusts for themselves. The documents were completely legal and had virtually no issues in wording or in form. Both parents passed close to the same time. The mother’s trust was properly funded so everything went smoothly, and the money transitioned easily into the trust accounts and to the beneficiaries. The father’s trust was not funded properly, and that is where the headache began.
The father had failed to designate the trust as beneficiary of some of his retirement accounts and insurance policies. He also did not designate any of his children as beneficiaries. This meant that any funds from these accounts were payable to the estate. What does “pay to the estate of” mean? It means that those funds are part of the estate, and they have to go through probate before they can be paid out to the father’s family.
This caused more than triple the time to settle everything and distribute the money to the children than it would have if the trust had been properly funded. Furthermore, it caused much higher legal fees and probate court costs that would have been avoided had the trust been properly funded.
In the end, the improperly funded trust caused twice the work and much more in cost for the father’s children. However, you can easily avoid probate!
Should Trusts Be Avoided?
Trusts should not be avoided at all costs because when used properly, they are great tools for preserving wealth, simplifying the transfer of your assets to your loved ones, and ultimately securing your family’s future. With that said, do you need a trust? Not necessarily, because there are other ways to do each of those things without a trust. It comes down to what is best for you and your family.
The Value of An Estate Planning Attorney
A quality estate planning attorney will walk you through your options and help you understand what your best options are for securing your family’s future. Many estate planning attorneys push trusts because they can make more money. The money can be worth it in some cases, but many attorneys fail to properly coach their client on how to use the trust to carry out their wishes (like how to fund a trust – Properly).
Like any estate planning document, a trust document is just a tool. It is vitally important that you know how to use that tool to get the job done.
Conclusion
Living trusts can be a great way to secure your family’s future. However, a living trust can easily turn into a living nightmare for your loved ones after you pass. Therefore, you should make sure you discuss with your estate planning attorney what you need to do once the trust document is drawn up. Make sure you completely understand what the trust is and how to use it properly before deciding to create one. If you have any questions about your trust after creating it, you should talk to your estate planning attorney who should be willing to answer any questions you may have so you can have confidence in your family’s future.
Considering a living trust as part of a complete estate plan? Or would you like to learn more about how to secure your family’s future? Please reach out to me at LawofZACooper.com/Contact!