Saturday, January 9, 2016
Living trusts are leaders among the techniques used to avoid probate due to their relative ease of creation and management compared to the time consuming process of probate. However, there are some pitfalls associated with living trusts that planners should look out for:
- Failure to fund a trust is an easily avoided but common mistake when the trust is set up. All that is required is a transfer of ownership from the settlor to the trust and can be in the form of any number of assets.
- When deciding which assets to place in a trust, look at the law of the state to see if there are any exclusions from probate for certain types of property. For example, cars and trucks are able to avoid probate in some jurisdictions. As a result, it is better to leave some forms of property in the name of the settlor than to make a transfer that will result in no gain from probate avoidance depending on the law.
- For IRA's and other non-probate accounts, it is better to leave them outside the trust since they have no need to avoid probate. However, it is imperative that the beneficiary form is always current because the assets will follow intestacy like guidelines set by the account administrator otherwise.
- Make sure that all relevant parties are involved in the creation and funding of a trust. Estate planners, lawyers, accountants, and any other relevant individual should be consulted to have a complete picture of the assets of the settlor and any special issues that might be associated with an ownership transfer.
See, Be the Hero: How to Help Your Clients Avoid Probate, Wealth Management, January 7, 2016.
Special thanks to Jim HIllhouse for bringing this article to my attention.