Hi. This is Marc Herbert from Herbert Law Office with the Question of the week. Yesterday, I was asked, is my trust from five years ago still good? And my answer when I get that question and I get a lot is it depends. Once I can review your document and go through it with you, we can find out if it’s still good five years later, ten years later.
But backing up a living trust, if it’s built correctly and properly funded, is a document that protects your house and other major assets from probate court and unnecessary taxes. But it’s important to draft your living trust carefully and then to monitor it over time, because your family is going to change, your assets are going to change. California law is going to change, federal law is going to change.
And it’s very easy for you. Trust that was good five years ago or ten years ago to need some work. There are some things that change over time, good or bad. So when I review someone’s trust, we always start with the document that you have in place. We review it, and about a third of the time there’s really nothing to change.
Everything’s fine. About a third of the time there is going to be minor changes or improvements that you want to make through what’s called an amendment. And then about a third of the time, you’re going to need a major update through what’s called a restatement or maybe even a whole new trust. And it’s always different for people based on your family structure, your asset structure and your goals, which do change from time to time.
And the Living trust is designed to handle those changes. But in reviewing your trust, one of the things I’m really looking for are the six common mistakes in a trust that I still see all the time, especially with these trusts that people download or get off a document preparation site or even some of the local attorneys still make these common mistakes.
Mistake number one is to not include what are called asset protection provisions, ways to protect your assets from lawsuits, you know, divorce proceedings, things like that. Another mistake I see all the time is what we call mandatory distributions. That is, you know, children must get their distributions the day they turn 21. Many times that works just fine, but many times it doesn’t.
So what’s usually better is if we use what are called discretionary powers, that is, children get their inheritance at 21 unless they’re in the middle of a bad divorce. They’re in a big lawsuit, at which point or they’re maybe subject to major taxes, at which point you may want to delay that distribution or make a smaller distribution over several years.
You may also want to advance the distribution, though, if that child gets into their dream college or has a medical need. The third major mistake I see a lot is that there are no contingent beneficiaries. That is, people say, I want everything split among my children equally, which is a great plan. A You know, that’s my plan. A is the three kids split everything equally.
But in my experience, you need a plan B in case something happens to one or more of those children before you pass. And even the Plan C, what happens in the unlikely event that all your children pass before you? You have to plan for contingencies and living trusts allow you to do that unlike any other document. Another mistake I see a lot is the use of co trustees or co-executor is on a will sometimes co agents on a power of attorney or an advanced health care directive.
And I always have to be careful calling this a mistake because I’m sure there are thousands of times when co executors and co trustees and co agents work just fine. But I still do a lot of work in probate court for people who don’t have estate plans or for co trustees situations where one trustee wants to do one thing, let’s say sell the house and the other co trustee does not want to do that action and they end up in conflict and then you end up in probate court and on down the line.
So there’s a high risk of litigation in certain situations that you can offset by doing one trustee at a time, one executor at a time, one agent at a time as an option. Whatever works. Good for you. The fifth major mistake I see still is a failure to capture all the income tax breaks that are available under state law and federal law.
They only give us a certain number of tax breaks, and you definitely want to capture as many as you can. Some of them at the moment at $11.5 million. And that’s a good tax break. You definitely want to write that down. You definitely want to make sure that’s built into your trust. And then the last major mistake I see a lot is a failure to properly fund the trust.
You know, some people bring me 200 pages of an estate plan and I go through the documents and I don’t see that the house was ever really transferred into the trust or the bank accounts or the trust wasn’t properly named as a beneficiary for life insurance for one case, IRAs. So what we do here at Herbert Law office is we fund the trust.
We make sure the house is actually protected by the trust. You know, there’s nothing worse than having a big document that doesn’t work. It doesn’t really protect anything. First of all, it shouldn’t take 200 pages to protect it. But it’s very simple to properly fund the trust. And yet there’s a lot of attorneys who don’t want to get involved in that.
I do want to get involved in that. I want to make sure that your assets and your family are protected. So if you have a trust with these mistakes or your trust was written before 2019, it’s probably a good idea to look at all the documents and to make any changes that you want, including the deeds and other documents for your plan.
And Herbert Law Office. We offer a free consultation to discuss your current financial situation. Review your options and then develop a customized plan that meets your needs and helps you, your loved ones and your assets. Avoid probate court and unnecessary taxes. If you’d like to schedule a free consultation to review your documents and talk about your customized plan, just give us a call at 6612739007.
We’ll talk to you soon. Have a great day.
