What are Common Mistakes People Make with Living Trusts?
Yahoo Life’s recent article entitled “Why You Should Put Your House in a Living Trust” explains some of the biggest errors people make with trusts.
Remember that a trust is a fiduciary relationship in which one party (the settlor) gives another party (trustee) the right to hold title to property or assets for the benefit of a third party (beneficiary).
Trusts are created for these reasons:
- To provide legal protection for the settlor’s assets
- To be certain that those assets are distributed according to the settlor’s wishes
- To save time and reduce paperwork; and
- In some instances, to avoid or reduce inheritance or estate taxes.
Also remember that although trusts are generally throught to be associated with the wealthy, they are highly versatile instruments that can be used by the middle class for a variety of purposes to achieve specific goals.
Common Mistake with Living Trusts No. 1: Failing to retitle your home. If you don’t retitle your home or transfer the deed into the name of the trust, you paid a lot of money for a piece of paper. The trust is empty because it hasn’t been transferred. Therefore, it is not covered.
Common Mistake with Living Trusts No. 2: Failing to notify tenants of the ownership change. If you’re retitling a two- (or multi-) family home into the trust, and the property has rent-paying tenants, you need to inform must them of this change in landlord for rent payment purposes. You’ll also need to set up a bank account in the name of the trust for rent deposits.
Common Mistake with Living Trusts No. 3: Failing to tell the insurance company of ownership change. Be sure to tell your home insurance company about retitling to a trust. If not, the insurance company may deny your claim in an event because the actual property owner—your trust—wasn’t insured.
Common Mistake with Living Trusts No. 4: Failing to tell the bank holding the mortgage of the intended transfer. Note: the Yahoo Life article is incorrect here, when it warns about triggering the “due on transfer” clause in your mortgage when transferring your owner-occupied primary residence to your revocable living trust. In reality, such transfers are protected from accelerating the mortgage by federal law, specifically the Garn-St. Germain Act of 1982.
Don’t make these mistakes. Work with an experienced estate planning attorney.
BOOK A CALL with me, Ted Vicknair, Board Certified Estate Planning and Administration Specialist, Board Certified Tax Law Specialist, and CPA to learn more about estate planning, incapacity planning, and asset protection.
If you liked this article, “What are Common Mistakes People Make with Living Trusts?” read these additional articles: Does the Executor Control Bank Accounts? and What Is Aetna Doing to Help Seniors Age in Place? and If I Eat Sardines will I Stave Off Dementia? and How Do I Write My Will?
Reference: Yahoo Life (Jan. 10, 2022) “Why You Should Put Your House in a Living Trust”