How to Avoid Common Estate Planning Mistakes

Avoid Estate Planning Mistakes: Avoid Disaster!

If you have already set up a revocable living trust with an attorney or certified legal document preparer, you may think you are all set. Be careful, you may not be! There are two common Estate Planning Mistakes that can wreak havoc on your estate plan.

Leaving Your Trust Unfunded

It is a common misconception that once you set up a trust it automatically protects everything that you own. This is not the case, a trust only works if it is funded with your assets. What does this mean? You have to retitle all your assets into the name of the trust. By doing this you are giving the trust ownership over your assets. This is necessary because if they are in your name when you pass they will be subject to probate. However, if they are in the name of the trust, the trust is considered the owner and when you die your successor trustee will have the responsibility of caring for and distributing your assets according to your instructions.

If you have a home or any other real property that you want to be covered by the trust you would need a new deed for those properties. In Arizona, that can simply be accomplished by executing a quit claim deed. This deed will change your home from being in your name, to being in the name of the trust, with you as a trustee. No need to worry, even though your deed is changed you will still retain complete power over the property, so long as your trust is revocable and you are the trustee. You can still sell it or remortgage it if you desire.

You will also need to transfer any bank accounts or investment accounts that you have into the trust. The most efficient way to transfer your bank accounts would be to go into the bank and talk with someone who can help you. You will need to change the bank account from being in your name, to being in the name of the trust, with you as trustee. Just like your home, this change will not affect your powers over this account. You can still pay your bills and spend money as you normally would. Investment accounts are a little bit different, typically the trust will be named as the beneficiary. This way when you pass, the money simply passes into the trust. Every type of investment account is a little bit different, so talk with your investment advisor to ensure that you are changing the paperwork correctly.

Failing to Designate or Update Beneficiaries

Some accounts, such as life insurance, will not be named in the trust since they are designed to pass directly to beneficiaries upon your death. It is important that you make sure you have designated a beneficiary on these accounts. As well as making sure you have a contingent beneficiary, in case the first beneficiary you listed passes before you do. You also will want to make sure that you keep your designations up to date, making changes as necessary. Times you may want to update your beneficiary designations may be after a death, divorce, or birth. Even though you do not have to put these accounts into the trust, you may want to name the trust as the contingent beneficiary, as a catch-all in case your other beneficiary is not alive to accept the inheritance.  Your financial advisor or insurance agent should be able to help you take care of any forms that you need to make these changes.

As you can see, these simple details can be disastrous if they were to be overlooked. Take the time to keep your estate plan up to date and complete. If you are uncomfortable with taking care of these details, employ a professional who can help you to make the transfers and changes for you. Furthermore, a professional can ensure that you avoid less common Estate Planning Mistakes. Whatever the case, don’t leave the passing of your assets to chance.