What Common Mistakes are Made with Living Trusts?
Remember, if you fail to retitle your home into the name of the trust, you basically paid a lot of money for a piece of paper. Your trust is empty, and if it hasn’t been transferred, it’s not covered, says Yahoo Life’s recent article entitled “Why You Should Put Your House in a Living Trust.”
Let’s look at a few of the errors people make when dealing with trusts:
- Failing to notify tenants of the change in ownership. If you’re retitling a two- (or more-) family home into the trust, and that property has rent-paying tenants, inform them about this change in landlord for rent payment purposes. You will also have to set up a bank account in the name of the trust for rent deposits.
- Not notifying the insurance company of ownership change. Tell your home insurance company about changing the property owner from an individual(s) to that of a trust. If you don’t, the insurance company could deny your claim because the actual property owner—your trust—wasn’t insured.
- Failing to transfer all of your property to your trust. If you don’t transfer your property to your turst during your life, the property that you fail to transfer to the trust will generally have to go through probate. Whoever you choose as your estate planning attorney should also make sure that all efforts are made to transfer your poperty to the trust.
- Failing to name your insurance policy the beneficiary of your trust. Sometimes the main inheritance of your heirs can be the life insurance policy on your life. If they receive the policy proceeds outright through the beneficiary designation, that may be fine, but in some cases it is not. For example, if your trust is meant to protect assets after your death (as an example, see “Protecting benefits for special needs individuals” below), then the proceeds of your policy will not be protected. In the case of an irrevocable living trust, failing to name your irrevocable trust as the beneficiary may result in your assets being available for your spouse, resulting in a Medicaid spend down.
Here are a few benefits you may not have considered:
- Probate avoidance. Because a trust is a contract, it generally won’t go through the probate process—part of which includes notifying your relatives after your death. When the decedent’s assets are in trust, they won’t be probated. Although probate avoidance should not necessarily be the most important goal in a person’s estate planning, it can be a great goal because it probate avoidance can reduce costs and make things less complicated for your heirs.
- A trust may be a simpler way to title assets in your new name. If you have informally changed your given name (i.e., not legally), a trust can be an easier way to retitle your assets.
- Protecting benefits for special needs individuals. If you have a family member with special needs or who is receiving government services/benefits, such as SSI or disability, leaving your home to him or her outright can cause issues with continuing these services and funds. You can protect and preserve those benefits and still leave an inheritance by placing your home into a trust whcih will continue as a Special Needs Trust for your family member for the family member’s life.
BOOK A CALL with me, Ted Vicknair, Louisiana Board Certified Estate Planning and Administration Specialist, Louisiana Board Certified Tax Law Specialist, and Louisiana CPA to learn more about estate planning in Louisiana, incapacity planning, and Louisiana asset protection.
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Reference: Yahoo Life (Jan. 10, 2022) “Why You Should Put Your House in a Living Trust”