Mistake #1: My family living trust does not have anything in it
Funding the trust is an essential step in the process, and it involves transferring ownership of assets into the trust. Real estate is often one of the most valuable assets owned by individuals and families, and failing to properly transfer ownership of real estate into the living trust can cause complications for the beneficiaries.When real estate is not properly funded into the trust, it may need to go through a separate probate process, depending on the applicable state laws. This can result in delays, extra costs, and added complexity for the beneficiaries.
Additionally, if the living trust is not “funded” during the lifetime of the grantor, the beneficiaries will not be able to bypass the probate estate process in the courts.
To avoid this mistake, when creating a living trust you should seek guidance so that you follow through with the proper process of funding your real estate into the living trust. This typically involves preparing and executing a deed that transfers ownership of the property from the individual to the trust AND submitting the revised deed with the County Recorder’s Office.
Additionally, it's important to review and update the title and beneficiary designations on all relevant property and accounts to ensure they align with the living trust. This can include bank accounts, investment accounts, insurance policies, and other assets.
By properly funding real estate and other assets into the living trust, the settlor can ensure a smoother and more efficient transfer of assets to the beneficiaries, while avoiding unnecessary probate proceedings and associated costs.
Mistake #2: I owe Raal Estate in California and I have a Last Will
While having a last will is important for leaving instructions on how your assets, including real estate, should be distributed after your passing, it is typically not enough on its own, especially when it comes to real estate.
In California, if you pass away with real estate valued at more than $166,250, your estate will generally go through the probate process when you only have a will. Probate is a court-supervised process of distributing the assets of a deceased person. It can be time-consuming, costly, and public, which is why many people try to avoid it. In the Los Angeles Probate Division of the Superior Courts, a relatively simple probate estate process takes between 12-18 months before the assets can be distributed to the beneficiaries.
To avoid probate and ensure a smoother transfer of real estate, it is often advisable to utilize additional estate planning tools such as a living trust. A living trust allows you to transfer ownership of your real estate to the trust while you are alive, and a successor trustee can manage the property after your passing, avoiding the need for probate. This can save time, money, and maintain privacy.Additionally, it is worth mentioning that having only a last will does not address potential incapacity during your lifetime. It is important to have other documents like a durable power of attorney for financial matters and an advance healthcare directive, which appoint a trusted person to make financial and medical decisions on your behalf if you become incapacitated.
To ensure a comprehensive and effective estate plan, it is best to consult with an experienced estate planning attorney in California who can guide you through the process and help you choose the appropriate legal tools for your specific situation.
Mistake #3: I fignure when I am gone, my family can deal with Taxes then
Taxes can be a significant issue in creating a living trust by not considering the tax consequences of assets going to the beneficiaries. In some cases, failing to properly plan for tax implications can result in unnecessary tax burdens for the beneficiaries or a reduction in the overall value of the assets.
When creating a living trust, it's important to consider potential tax liabilities, such as estate taxes, gift taxes, and income taxes. Depending on the size of the estate and the applicable tax laws, the transfer of assets to beneficiaries can carry tax consequences.For example, if the value of the estate exceeds the federal estate tax exemption threshold, the estate may be subject to estate taxes upon the trustor's death. Failing to plan for this tax liability could result in a significant reduction in the value of the assets being passed on to the beneficiaries.
Similarly, the beneficiaries of the trust may be subject to income tax on distributions from the trust or on the realized gains from the sale of trust assets. In some cases, proper planning strategies can help minimize or defer these tax liabilities.
To avoid this mistake, it is advisable to work with an experienced estate planning attorney or tax professional who can analyze the tax implications of the assets within the trust and develop a plan that minimizes tax liabilities. They can help identify opportunities for strategic gifting, the use of tax-saving trusts, or other tax planning strategies to maximize the value of the assets to be passed on to the beneficiaries.
Considering the tax consequences of assets going to beneficiaries in a living trust helps ensure that the intended beneficiaries receive the maximum value from the trust while minimizing the tax burden on them.
Mistake #4: My mother insists that owning a home doesn't effect Medicaid
In creating a living trust is failing to consider Medicaid eligibility requirements. Medicaid is a government program that provides healthcare coverage for individuals with limited income and assets, particularly for long-term care expenses.
Many people create living trusts as a part of their estate planning to protect assets and potentially qualify for Medicaid benefits in the future. However, if the trust is not properly structured or funded, it may unintentionally disqualify the trustor from Medicaid eligibility.Medicaid has strict asset and income limits, and any assets held within a living trust may be counted towards those limits. Furthermore, certain transfers of assets into a trust may trigger a penalty period, during which the trustor is ineligible for Medicaid benefits.
To avoid this mistake, it is crucial to consult with an experienced estate planning attorney who is knowledgeable about Medicaid eligibility requirements. They can provide guidance on structuring the trust in a way that protects assets while still complying with Medicaid rules.Additionally, it may be necessary to consider other Medicaid planning strategies, such as creating an irrevocable trust, transferring assets with sufficient time before needing Medicaid benefits, or utilizing specific provisions allowed under Medicaid rules.
Overall, incorporating Medicaid eligibility requirements into the planning process helps ensure that the use of a living trust aligns with your long-term care goals and avoids any unintended consequences that could jeopardize Medicaid eligibility in the future.
Mistake #5: I have not named a successor Trustee to avoid my children fighting over it
Choosing the wrong person to be the successor trustee can be a significant mistake when creating a living trust. The successor trustee is the person or entity who will assume responsibility for managing the trust and distributing assets after the trustor becomes incapacitated or passes away.
The successor trustee is an important role as they have the legal duty to administer the trust according to its terms, act in the best interests of the trust beneficiaries, and handle various administrative tasks such as managing investments, filing taxes, and distributing assets.Choosing the wrong person as a successor trustee can lead to mismanagement of the trust, conflicts among beneficiaries, delays in the administration process, and potentially even legal disputes.
To avoid this mistake, it is important to carefully consider the qualifications, capabilities, and trustworthiness of potential successor trustees. Some factors to consider include their financial acumen, organizational skills, willingness to take on the responsibilities of the role, and their ability to remain impartial and act in the best interests of the beneficiaries.
It may be beneficial to consult with an estate planning attorney who can guide you through the selection process and provide advice on choosing the most appropriate person or entity to serve as the successor trustee of your living trust. This can help ensure that the trust administration process goes smoothly and that your wishes are carried out properly.