Living Trusts–3 Common Mistakes
Living Trusts are by far the most useful and popular Estate Planning tool in California today. However, there are 3 common mistakes I see far too often at my office when clients bring in trusts to be reviewed.
Mistake #1: The trust is not funded. For a living trust to work as intended, all your significant assets must be titled in the name of the trust. This means property deeds, investment accounts, CDs, and savings accounts should be titled in the name of the trust. Simply listing the asset or account on the trust’s schedule of assets is not enough. Very often I see people who assume the asset or account is in the name of the trust, but when we review the paperwork it in fact is not titled properly. This is especially true when real estate is taken out of a trust as part of a refinance but never put back into the trust.
SOLUTION: Check your accounts and real estate at least once a year (at tax time?) to ensure everything is titled properly.
Mistake #2: Handmade Changes. A trust is a formal notarized legal document. Please do not attempt to change your trust by crossing out or adding words. Your trust was notarized when it was originally executed, the changes were not notarized. This can lead to many problems, including unnecessary taxes, contests, and hassle for your heirs.
SOLUTION: Contact a qualified estate planning attorney to make changes to this important legal document.
Mistake #3: Wrong Estate Tax Clause. Many married couples have a so-called “AB Trust” or “ABC Trust”. This trust requires a division of the estate at the time of the first to die. There may be very good reasons for this, tax and otherwise, and it may be appropriate for you. On the other hand, it may be a very big hassle for the survivor with no tax benefit for the family.
SOLUTION: It is a good idea to review your trust, and if you have an “AB Trust” or “ABC Trust”, consider whether other options, such as a “Disclaimer Trust” (aka “Optional B Trust”) might work better for you. See my website page on this topic for more information.
As always, if you have questions about this subject, feel free to call me at (707) 829-7303, or email me at ken@kenjacobs.com.
-Ken