Living trusts are a useful alternative to wills.  It is important to work with an experienced estate planning professional who can help assess your needs and answer all of your estate planning questions such as, “What is the difference between wills and trusts?” and “Which option is right for me?”.  Most people look at the benefits of a living trust, but it’s important to know the downsides as well.  A living trust can be beneficial in helping your estate avoid probate, minimizing taxes and keeping your estate plan private.  These items make a living trust a highly utilized estate tool, however there are some living trust problems you should also consider.

Many people don’t fund their trust correctly.

When you create a trust, you need to transfer your assets from your ownership to that of the trust.  If you skip this step, you lose the benefits of the trust.  If the mortgage on your home is currently in your name you will need to retitle it in the name of your trust.  You will need to do the same thing for your vehicles and accounts.  Deeds and titles should all be updated to reflect your trusts ownership.  Your bank may also require you to close your existing accounts and open new ones in the name of the trust.  Renaming and retitling property and accounts can be time consuming and may present some challenges.  Some people create a trust and then either forget or simply decide to leave their assets out of the trust.  When this happens those assets will be forced to go through probate, which diminishes many of the benefits of a living trust.

Living trust beneficiaries can also present some challenges.

It is important for you to be precise when determining how much to leave, to whom, and the method of distribution.  If you leave any of these items open to interpretation it can cause disputes among family members.  These disputes can lead to protracted and expensive legal battles.  In addition, if you name a beneficiary that is a minor be certain to nominate a guardian to protect those funds until the child is old enough to manage his or her money (http://info.legalzoom.com/living-trust-problems-27143.html).

Misconceptions can cause living trust problems.

Make sure you know the facts about living trusts.  For instance, many people believe that they must name their bank as trustee of their living trust.  This is not accurate.  You can act as the trustee of your revocable living trust and if you would like, your spouse can act as your co-trustee.  This is a good choice if you would prefer to manage your estate’s assets until the time of your death.  Once you pass away, the person you appoint as your successor trustee will distribute your estate as your trust instructs.

Your successor trustee can make or break your trust.

It is very important to choose a successor trustee that can and will execute your wishes as laid out in your living trust.  An ineffective or unqualified trustee can wreak havoc on your estate and loved ones.  One of the benefits of a living trust is that you are able to avoid going through the court system.  When you pass away, your trustee simply disburses your estate per the terms of the trust.  if your trustee is not up for the job it can create family fights and legal issues.  If your beneficiaries feel that your appointed successor trustee is not acting in the best interest of the estate, they can take the trustee to court and petition for his or her removal.  This could be a lengthy and expensive process that must go through the court system.  This can take a tremendous amount of time and financial resources.  In addition, the court process will more than likely be made part of the public record.  In order to avoid this situation, you must nominate a successor trustee that is capable of performing the job.

Living trusts are expensive.

One of the most obvious living trust problems is the cost.  While you can find a template online to create a will yourself, a living trust is more complex.  Because you will need legal assistance with executing a living trust properly and they tend to be more complicated, there is a higher upfront expense.  Depending on your needs the extra expense may be well worth it, but you should work with an experienced estate planner to determine if this tool meets your needs.

Living trusts are not needed for everyone.

Depending on your assets you may not need a trust.   If you have a modest estate a trust may not be necessary.  In addition, depending on the type of assets you own, they may pass directly to beneficiaries without going through probate.  Transfer on death and payable on death accounts do not need to go through the courts before being distributed.  Real estate that is held jointly with rights of survivorship also avoids the court process.  If you only hold accounts and assets that pass directly to the designated beneficiary, you may be able to forego a trust and opt for simpler and less expensive estate planning.

An experienced estate planning professional can help you avoid these common living trust problems.  When working on an estate plan, there is no one size fits all solution.  Please call our office and allow us to listen to your situation, assess your estate and map out the best strategy to execute your wishes.

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