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Common Estate Planning Pitfalls and Mistakes to Avoid
This article is the fourth and last article in a series designed to educate and inform the reader on common estate planning pitfalls and mistakes we see in our practice, and solutions to avoid them. Often such mistakes result in undesired outcomes, create undue stress on loved ones, and require costly measures to fix problems avoidable with minimal planning. Our fourth topic for discussion covers the importance of carrying out the proper steps necessary to ensure that your estate planning is carried out according to your desires.
Estate Planning Mistake #4. – Neglecting to Re-Title Certain Assets in Trust Name:
In a previous article, we discussed the importance of having the proper components in your estate plan (Click here for a link to that article.), with a living trust in place as the primary method of avoiding the unnecessary expense of a probate.
One can create a living trust and completely overlook one of the key steps of re-titling assets in the name of the trust. Often, estate planners refer to this step as “funding a trust” or “placing assets into a trust.” Failing to fund one’s living trust properly opens up the possibility of a court-supervised probate and the likely result that the trust will go entirely unused.
Estate planners often work with clients to obtain a complete understanding of the assets before ultimately creating documents or instructions to ensure that assets are effectively re-titled into their living trust’s name. Most of the time, this is a combination of deeds for real estate, letters to financial institutions, completion of beneficiary designation forms for certain assets such as life insurance, assignments of various ownership interests, including the re-issuance of certificated interests such as a stock certificate or other ownership interests in a business or partnership. This step typically has a few more moving parts than is easily perceived on the surface. The work to accomplish this is typically shared by the attorney and client.
The following is a brief outline of various considerations and effects which some estate planners often contemplate when assisting with putting in place a comprehensive estate. Note that this is not an exhaustive breakdown, and individual needs may dictate other tools to meet the estate planning client’s needs and desires.
Probate on a Portion of An Individual’s Assets.
A probate is usually necessary to collect assets having a combined value greater than $166,250 or an interest in real property (including a partial interest) totaling more than $55,425. With that in mind, it is entirely possible that a portion of an individual’s assets may be subject to a court-supervised probate if they are not properly titled in the name of a living trust. Nevertheless, assets below these thresholds may be collected by an affidavit procedure and added into a trust.
Beneficiary Designations vs. Ownership Interests.
Certain assets pass to heirs upon the death of the individual by contract, or operation of law, such as a retirement account or life insurance policy. As part of the estate planning process, attorneys often help clients better understand the nuances of how they own particular assets and determine whether it makes sense (1) to re-title assets in the name of a living trust or (2) to change the designated beneficiary to the trust. In the case of a retirement account, there tend to be more reasons to not name a living trust as a beneficiary, which is beyond the scope of this article; while in some circumstances, it may make perfect sense to do so. Often beneficiary designations of life insurance policies and other payable on death (POD) or transfer on death (TOD) assets are updated to reflect the name of a living trust as the primary beneficiary. The goal here is often to avoid any possibility of a probate, protect assets, and provide a structure on how beneficiaries receive their assets.
Court Order to Avoid a Probate.
At some costs, there exists a court procedure that attorneys refer to as a Heggstad petition to ask that the court issue an order declaring assets to be owned by a living trust. While a Heggstad petition avoids a court-supervised probate, it requires the showing of a writing that the owner intended the asset to be placed in a living trust, but somehow failed to complete the process to re-title an asset. Such “writing” may include a trust schedule of assets, a letter of instruction, or an improperly executed document. The costs of such a procedure are likewise unnecessary and avoidable by adequate planning.
Other Tax Considerations.
For some taxable estates, meaning estates of a more significant value, failing to properly fund all the correct assets in the name of a living trust can have negative implications after the first death of a married couple. While this particular element may be discussed in greater detail in a future article, it remains a significant consideration in ensuring that the proper steps are completed to ensure the avoidance of any unnecessary expense.
Solution:
Work with an estate planning attorney and carefully explain what assets you own so that the proper steps are carried out to ensure that your loved ones can navigate your estate smoothly and efficiently by fully funding your living trust.
Kirk & Simas regularly assists individuals and families with their estate planning needs and is here to help you get started on this process.
Please call us at (805) 934-4600 to schedule an appointment for more information