You’ve probably heard about the advantages of a living trust when it comes to putting together an estate plan.
Assets placed in a trust avoid probate, which is time-consuming and potentially costly.
Furthermore, a living trust allows you to name a trustee to administer your assets after you die, which is vital if your heirs are little children or adults who cannot handle a substantial inheritance.
While living trusts are great as they simplify the distribution of inheritance, many people make costly mistakes that make the process too convoluted for your estate planning attorney and heirs. What are some of the common mistakes?
Putting the wrong things
There are several things that you shouldn’t put in the living trust. They include: 401(k) plan, IRAs and tax-deferred annuities
According to Kris Maksimovich, president of Global Wealth Advisors in Lewisville, Texas, if you move any of these funds to your trust, the IRS would interpret the transaction as a distribution, and you must pay income taxes on the full amount. You don’t want this, do you?
To avoid this, you should designate your trust as the beneficiary of your retirement assets. By naming your trust as a beneficiary, you can control how your assets are dispersed to your heirs and protect the cash from creditors.
Failing to include vital items
The same way people add the wrong things is the same way they fail to add vital items. To stay safe, add the right items to your trust. The things that you should add include:
Real estate, including your home
It could be your most valuable asset, and it’s a good one to put in trust. This will shorten the time it takes to transfer the home to your heirs.
If you own property in another state, such as a vacation house, transferring the ownership to a living trust allows you to avoid probate in more than one state. You’ll need to draft a new deed transferring property ownership to your trust.
Transferring your home to a trust will help your selling capacity. While this is the case, you should note that to refinance your mortgage or receive a home equity line of credit, your lender may ask you to transfer the property from the trust and back into your name.
Once the transaction is complete, you can return the property to the trust.
These include stocks, bonds, and mutual funds. You should also include certificates of deposit, money market funds, and bank savings accounts that are rarely used to write checks. You can even include your safe deposit box in the trust.
Adding these accounts requires some paperwork, so work with a professional who knows what they are doing.
Personal items such as collectibles, jewelry, and art
You don’t normally need to retitle these assets, but you should make a list with instructions to include them in the trust.
You can use the trust to specify who should receive these assets, which comes in handy in avoiding family feuds once you are gone.
This type of guidance can also be provided in a will, but a will becomes a public record, which is undesirable if your pearls are valuable.
While the car you drive around town is unlikely to belong in a trust, you may add any collectible vehicles you possess, especially if you believe the vehicle’s value will hold or increase over time.
After transferring and retitling assets to your trust, you should review it regularly to ensure it’s current.
The best way to go about it is to do the review on an annual basis. In other circumstances, every three to five years may be sufficient, although you may need to review (and maybe alter) the trust following a big life change, such as the sale of your house, the birth of a child or grandchild, or a marriage or divorce.
Do you need a trust?
As much as trust is important for you and your loved ones, you should note that it’s not for everyone. It’s not everyone that should create one.
Before you go ahead and find a lawyer and draft one, you should ask yourself whether it’s wise to get one in your current situation.
As previously said, funding a living trust needs some legwork and consideration of expense. Legal fees can also be high, depending on where you live.
A living trust may be worth the cost if it eliminates the complexities of probate.
Because most states exempt a specific amount of assets from probate, you probably don’t need a living trust if your estate is small—less than $100,000, for example.
Furthermore, if the majority of your assets are in retirement funds, you may not require a living trust because those assets will pass to beneficiaries outside of probate.
Life insurance with a named beneficiary will also avoid probate because the recipient will pay the death benefit.
You can make bank and other accounts receivable upon death to your heirs, in which case the accounts will avoid probate. Property owned jointly, such as a home you and your spouse own, will also pass to the surviving owner outside of probate.
Before you spend money on wills and trust attorney PG County, find out if your property is large enough for a trust. If not, save the money.
These are some of the things you should know about a trust. Many people shy from setting up a trust because they think it’s complicated, but it’s not.
Others avoid it as they have a will. You should note that while a will is an important aspect of estate planning, it is not a one-size-fits-all answer.
A will must go through probate, which may be an expensive and public process. A living trust, on the other hand, allows for a more private and efficient asset distribution.
If your property is large enough, there is no harm in having both a living trust and a final will and testament, offering you the best of both worlds.