Learning about trusts can help immensely when it comes to estate planning. Placing property in trust can help you avoid a long and costly probate process. But, like other helpful tools, a trust might not fit every situation, so it must be used only when needed. For example, the best tool to use if you want to drive a nail into a wall is probably a hammer. However, if you hit the nail at the wrong angle, it will buckle and you’ll have to take it out and start over. Here are two of the most common mistakes involving the use of trusts, and how to avoid them.
Not Knowing the Correct Type of Trust You Will Need
The first error when it comes to the use of trusts is not setting up the right variety. There are multiple kinds of trusts to choose from. The most common type of trust recommended for estate planning is a Revocable Living Trust, often referred to as an RLT. An RLT is an ideal fit for most estates, as it can provide for asset management during incapacity and avoids probate, among other advantages. However, certain considerations mean it may not be the right type of trust for everyone.
For example, if the trust’s creator should need to qualify for Medicaid at some point in the future, the assets held in the RLT will be counted as available, just as if they were owned outright. In a case like this, a special irrevocable trust could be used. A trust like this limits the transferor’s rights in the assets to only include income, or the transferor might not be a beneficiary of the Medicaid trust at all. While a Medicaid trust is not the right answer for every situation, it can allow the transferor to qualify for medical assistance, so long as the transfer is made far enough in advance of the Medicaid application. Both probate attorneys and their clients need to consider what kind of trust is desirable. Each type of trust has its strengths and weaknesses, so the most important consideration is knowing which option best fits the client’s specific needs. A qualified estate planning lawyer can suggest an appropriate trust for a given situation.
Lack of Funding
The second major mistake is not funding the trust properly. An RLT can be a valuable tool, but only if it is funded—otherwise, it may end up not being worth the paper it’s written on. If a will exists which transfers assets to the revocable living trust upon death, the assets would be subject to probate, and at that point they would be distributed according to the terms set out in the RLT. Without a will, however, the unfunded assets would pass according to the rules enacted by the legislature of the state of residence. Therefore, an RLT should be funded appropriately to increase its usefulness in the event of incapacity and after its creator’s death, thus avoiding probate.
For more information about how a trust can help simplify the estate planning process, contact Queens probate lawyer Richard Cary Spivack, and go forward with confidence.