3 Things Living Trusts Won’t Control
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Individuals and families often choose to create a revocable living trust because they understand it offers more control and flexibility than a will. A will must be filed with the court as part of the public (and unpredictably time-intensive) process of probate and can be contested by surviving family or heirs. Revocable living trusts, on the other hand, remain confidential, provide for potentially immediate distribution of assets to trust beneficiaries, and typically ensure that assets pass directly according to the trust terms.
Use of trusts as an estate planning tool may provide benefits beyond those noted above. Trusts can help to minimize an estate tax burden, as assets placed into certain irrevocable trusts are not counted in the decedent’s taxable estate. Also, revocable living trusts may be amended at any time, which allows the trust grantor to retain control and flexibility in structuring their estate plan. However, while trusts may serve as a powerful estate planning tool, there are some aspects of one’s estate plan that creating a living trust will not control:
- Trust funding. One of the biggest mistakes individuals make with regard to trusts is failing to fund the trust. A trust will not fund itself, and neglecting to take steps to properly retitle assets in the name of the trust typically results in probate. While an individual might invest time and efforts to carefully craft a trust with an attorney, completing the trust funding process is not an attorney’s duty (except if the attorney was retained for that need) and typically requires actions to be initiated or authorized by the trust grantor. Funding the trust typically requires some follow-up with financial institutions to ensure proper account titling as well, so trust grantors should plan in advance and ask their attorney about the process involved for different types of assets. Transferring vehicles to a trust in North Carolina, for instance, requires a visit to the DMV and, depending on the trust grantor’s intent and financial situation, might not be advisable in certain circumstances.
- Beneficiary designation. Individuals who routinely review their trust and ensure the trust beneficiaries align with their personal wishes might be disappointed to learn that the trust terms do not automatically update other assets’ beneficiary designations. Life insurance, retirement accounts, and other assets with beneficiary designation forms should be updated either to reflect the trust as the beneficiary or to ensure that the intended individual beneficiary is named. Depending on the complexity of the trust plan and whether assets are distributed outright to beneficiaries or held in further trust, beneficiary designations of retirement accounts may present a complex analysis of tax law; thus, it’s recommended that you consult with your estate planning attorney prior to making any changes to beneficiary designations for retirement accounts.
- Naming an executor. In North Carolina, when a person dies with a will, the person named as executor is generally issued Letters Testamentary by the court upon application. If a person dies without a will in North Carolina, the court will issue Letters of Administration after an individual or party applies with the court to serve in the role. A living trust serves as a tool to privately transfer assets and may not serve to nominate an individual to serve as executor of one’s will, if needed. Trustees oversee the administration of trust terms, and an executor is not involved unless one or more assets must pass through probate. For this reason, it is generally recommended to have a simple will in place to nominate someone to serve as executor in case there are probate assets.
Read more about administration of estates in the absence of living trusts.
