Errors Made When People Create Their Probate-Avoidance Trust

Here’s six mistakes people make when they have their revocable living trust-based estate plan where they are attempting to leave their estate the right way to their loved ones while enabling their survivors to avoid the court and attorney-involved probate process.

1. While you likely own nonprobate assets like IRAs and life insurance that avoid probate by your naming beneficiaries, you need to transfer your nonprobate assets like real estate, stock accounts, and business interests to your trust during your lifetime because only assets that are already titled in your trust when you die avoid probate. This re-titling process is called "funding your trust."
2. Get the trustee designations right. It’s likely that decades will pass between the time that you create your trust and the time that you pass away. Lots can change during that time. Make sure you make the right decisions regarding first trustees, alternate trustees, will you use co-trustees, what happens if there is a vacancy in the office of trustee, can the beneficiaries, perhaps unanimously, remove a beneficiary, is the trustee entitled to compensation, does your trust enable your trustee to make death-bed, tax saving transfers, or handle digital assets. Can your child who is a trustee self-deal and purchase assets from the trust, like your home, so long as it’s for fair value?
3. Over-relying on TOD and POD designations. Transfer on death and Payable on death are generally a good thing, but, because financial institutions sometimes are reluctant to rely on powers of attorney, it’s likely easier for your successor trustee to handle accounts and real estate when you become incapacitated - if you go ahead now and move those accounts and assets into your trust. And TOD and POD designation forms are very rigid when it comes to what happens if a beneficiary predeceases you. Many of these designation forms require that the accounts be payable to the surviving beneficiaries if a TOD beneficiary predeceases the account owner. Most account owners want, if a child predeceases, for the child’s share to go to the child’s children. Bottom line on TOD and POD designations is that many people name their trust as the beneficiary on that POD or TOD designation - this allows all the account assets to be transferred to your trust after you pass away, outside of probate, for distribution by your successor trustee to your trust beneficiaries.
4. Too many people make false assumptions about living trusts. Common false assumptions that people make include: the trust needs a TIN, the trust excludes assets from the estate for federal estate tax purposes, the trust assets are not countable resources for long term care Medicaid eligibility if you reside in a nursing home, the trust assets are exempt from your future creditors, and some people falsely assume that they avoid probate simply by having a living trust even though assets are not transferred to it. All of these assumptions are false.
5. Failing to document the trust assets. If you don’t maintain a thorough record of all the accounts and assets titled in your trust, you’re likely to send your successor trustee on a wild goose chase when you die, making the trust settlement complex and lengthy. The national estate planning law firm, America’s EstatePlanning Lawyers, LLC (AEPL), for example, gives each of its clients a secure online vault location where all asset information, all relevant estate documents and other information your successor trustee may need is all right at their fingertips.
6. Acting too quickly after the trust settlor dies. The fact that trust assets can be distributed so quickly after the settlor dies can be a real blessing, but occasionally it’s also a curse. The trustee is responsible for paying the Settlor’s bills, taxes, and debts, and if the trustee quickly distributes funds to trust beneficiaries upon the Settlor’s death, the trustee could be in a position of going back to the beneficiaries and asking them to return a portion of their inheritance to cover expenses that were not taken care of prior to the trust distributions.

Here's a video I made where I went much deeper on mistakes that are made when people create a revocable living trust-based estate plan.