Understanding Living Trusts: Dos and Don’ts of Estate Planning

DISCLAIMER: THE INFORMATION CONTAINED HEREIN IS SOLEY FOR EDUCATIONAL PURPOSES. IT IS NOT LEGAL ADVICE OR LEGAL AUTHORITY AND IS ONLY THE AUTHOR’S INTERPRETATION OF ESTATE PLANNING LAWS RELATED TO LIVING WILLS.

Creating a living trust can be a valuable estate planning tool for managing assets during your lifetime and distributing them to beneficiaries after your death and, more importantly, minimize costs related to settling an estate. A living will is different from your last will and testament which distributes your property after you die.

In a Living Will document you state the kinds of medical treatments you want, or do not want, when you are terminally ill and unable to make your own decisions. A living will is sometimes also called an advance directive, advance healthcare directive, or advance medical directive.

However, there are certain dos and don’ts to consider when establishing and managing a living trust to ensure that it achieves your intended objectives and avoids potential pitfalls. Here are some important dos and don’ts for living trusts:

Dos:

• Do Understand Your Goals: Clearly define your estate planning goals and objectives before creating a living trust. Consider factors such as asset protection, probate avoidance, incapacity planning, and providing for beneficiaries.
• Do Work with a Qualified Professional: Consult with an experienced estate planning attorney who can guide you through the process of creating a living trust. An attorney can help you understand the legal requirements, customize the trust to your specific needs, and ensure that it complies with relevant laws and regulations.
• Do Fund the Trust Properly: Transfer ownership of your assets into the living trust to ensure that they are governed by its terms. This may involve retitling bank accounts, real estate, investments, and other assets in the name of the trust.
• Do Update the Trust as Needed: Review and update your living trust periodically, especially after significant life events such as marriage, divorce, birth of children or grandchildren, or changes in financial circumstances. Make necessary revisions to reflect your current wishes and estate planning goals.
• Do Name a Successor Trustee: Designate a successor trustee to manage the trust assets and distribute them to beneficiaries according to your instructions in the event of your incapacity or death. Choose someone who is trustworthy, responsible, and capable of fulfilling fiduciary duties.
• Do Consider Privacy Benefits: Unlike a will, which becomes a matter of public record during probate, a living trust allows for private distribution of assets without court involvement. This can help maintain privacy for your estate and beneficiaries.
• Do Coordinate with Other Estate Planning Documents: Ensure that your living trust works in conjunction with other estate planning documents, such as a pour-over will (directs assets not in the trust to be put in the trust), durable power of attorney, and healthcare directives. These documents can address additional aspects of your estate planning, such as guardianship for minor children and healthcare decisions.

Don’ts:

• Don’t Neglect to Fund the Trust: Failure to transfer assets into the living trust can render it ineffective and defeat the purpose of creating it. Be diligent about funding the trust with all appropriate assets to maximize its benefits.
• Don’t Assume Trusts are One-Size-Fits-All: Avoid assuming that all living trusts are the same. Trusts can be customized to meet individual needs and objectives, so work with your attorney to tailor the trust to your specific circumstances.
• Don’t Forget to Update Beneficiary Designations: Review and update beneficiary designations on retirement accounts, life insurance policies, and other assets to ensure that they align with your living trust and overall estate plan.
• Don’t Overlook Trust Administration Requirements: Understand the administrative responsibilities associated with managing a living trust, including record-keeping, tax reporting, and distributions to beneficiaries. Make sure the successor trustee is aware of their duties and obligations.
• Don’t Use a Living Trust as a Substitute for Proper Estate Planning: While a living trust can be a valuable estate planning tool, it may not address all aspects of your estate planning needs. Be sure to consider other planning strategies and documents as appropriate, such as life insurance, retirement accounts, and healthcare directives.

By following these dos and don’ts, you can effectively establish and manage a living trust as part of your comprehensive estate plan, providing for the orderly management and distribution of your assets according to your wishes. Consulting with legal and financial professionals can help ensure that your living trust is structured and administered correctly to achieve your estate planning goals.

Adams & Sullivan lawyers make thoughtful recommendations for blending a number of useful estate planning tools such as living wills and:

• Wills and Trusts
• Special Needs Trusts
• Revocable or irrevocable trusts
• Durable and medical powers of attorney
• Guardianships and conservatorships
• Strategy for charitable giving
• Asset protection