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3 Biggest Mistakes in Estate Planning

David R. Schneider
Written by David R. Schneider

When it comes to creating a revocable living trust, here are three mistakes to avoid.

I think for most of us, creating a trust that has the least amount of headache for our loved ones is important. Unfortunately, I see a fair number of trusts that have one of these three big mistakes, if not all. Deciding when a child or beneficiary will receive their inheritance is a biggie, especially if your children are younger. Then choosing the right trustee to make sure that your trust is executed the most fair and legal way. Once you’ve got these two fixed, the next monstrous mistake to fix is actually funding your trust. There is nothing to execute if your trust is empty. And if there is, it will take a lot more time and headache for those loved ones.

1 When To Deliver The Trust Assets

Significant thought must go into the “when” of delivering the trust assets. The State of California says your child is mature and an adult when they attain the age of 18. What we know is that 18-year-olds can generally make poor decisions. Showering them with money, homes, and assets usually does not help. So, when is the right time? Age 21? 25? Graduation from college? The correct answer might be all these times or none of these times or something in the middle. 

Generally, most young adults will hit the pinnacle of their maturity by age 30–35. So, to help protect those younger beneficiaries, primarily from themselves, we utilize a tool called the Children’s Trust provisions as part of the overall trust. This allows the successor trustee to hold back assets from distribution to the young adult until a time when you expect they would then be mature enough to handle the responsibility of owning/maintaining the assets.

Well, my kids are older, so I don’t have to think about that right? Sadly no. There is, in fact, no guarantee that your children will actually survive you. The law of large numbers says this is the most likely of circumstances, but it is certainly not guaranteed—we all know someone in our own family or someone we are very close to that has lost a child before a parent. Should this tragic situation occur, there needs to be a backup plan. The usual plan would be to send the share to the deceased child’s children (your grandchildren). Given the usual circumstances, these people are likely to be young, so we face the same problem again. Comprehensive planning is the thought process beyond the obvious and making sure all your needs and the needs of the future generation are met.

The single biggest failure of a revocable living trust is the failure to properly title assets in the name of the trust. 

An additional problem often not properly addressed with beneficiaries is dealing with special needs beneficiaries, beneficiaries with developmental disabilities. These beneficiaries usually cannot inherit as they will not have the requisite skills to handle such an inheritance. They are often taken advantage of, and such inheritance can have the negative effect of disallowing programs the child previously qualified for which were based on the requirement that they had no assets and were in fact at the poverty level. We deal with these unique circumstances through a Special Needs Trust.

2 Choice Of Trustees / Co-Trustees

A realistic view of the people you are turning to handle your affairs is of paramount importance. Several times a week I hear the exasperation of a sibling or beneficiary that that their brother/sister is not responsive, not doing what they are supposed to, not communicating, hiding information… the list goes on. This is a daily call received and no one can believe that this person is not following the terms of the trust. In this circumstance, the only trust police are the other beneficiaries; the only method to enforce the trust law, is through legal action. So what this really comes down to is whether you have picked someone that can be relied upon.

Several common mistakes come up when the client is trying to choose who to pick as their successor trustees; some will look to the eldest son, eldest child, child that lives the closest, child that lives with them and knows where the paperwork is. Really, all of these miss the real objective—to choose the person who you have faith and confidence in, that come hell or high-water, these people have your back. You are looking for someone who is fair and above reproach.

Another thing I often hear, “I don’t want to hurt someone’s feelings.” When compared to mismanagement of the beneficiaries’ funds, hurt feelings are the last thing that should be considered.

“So I will name all of the children to act together…” Most clients I work with have a very optimistic view that all their children will get along, when most of the time they cannot even agree where to eat lunch! There is nothing inherently wrong with naming a co-trustee, but this is not a situation of person 1 or person 2—it is person 1 and person 2 acting together.

The most important thing here is to be realistic and make the best choices possible and not be driven by emotion or an antiquated thought that the oldest child is the best to do this.

3 Funding Your Trust

You have created your trust and estate plan and you are feeling pretty good about this. You finally put the plan in place, the one you had been thinking about and promising yourself you would do for years—weight off your shoulders, good job! WHOA, YOUR NOT DONE YET!

The single biggest failure of a revocable living trust is the failure to properly title assets in the name of the trust. Most people and a surprising number of professionals have the belief they have finished their project with the signing of the trust agreement. Remember, the trust is a separate legal entity, controlled by the trustees. The trustees can only control that which is owned by the trust. If the asset remains in your name, the name of the decedent, the trustee cannot control it and the typical outcome will be a probate proceeding with all the costs and delays you were trying to avoid. 

This means not only re-titling the real estate in the name of the trust, but also the financial accounts—checking, savings, CD’s, brokerage accounts. The life insurance should name the trust as the beneficiary—not the spouse. Depending on the age of your beneficiaries, you may need to name your trust as a successor beneficiary of your IRA and 401k.

These discussions and counsel concerning the various options, is what you should expect when dealing with your estate planning professional—what you cannot obtain when completing a form online. The surgeon does not operate on themselves, and the plain fact of the matter is that you yourself will never know if the estate plan failed.  

About the author

David R. Schneider

David R. Schneider

David R. Shneider specializes in estate planning, bankruptcy, probate work, and business services. David is known for his personal and client-oriented services. DRS Law.

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