Mastering Your Revocable Living Trust

The revocable living trust can be a powerful estate planning tool. While it offers significant advantages, like avoiding probate and providing clear instructions for asset management after death, it also comes with pitfalls that can undermine its effectiveness if not properly addressed. 

In this article we’ll take a brief look at these pitfalls and how you can avoid them to maximize the benefits of a revocable living trust. 

✒️📔Craft a clear, helpful document

After learning they are the trustee of a deceased loved one’s trust, clients and referrals often contact us for guidance on how to properly administer the trust's directives. Upon review we find the trust, while created with the best intentions, is a mess to administer for a bevy of reasons. A poorly written trust benefits no one. Here are a few ways to get started:

🧐Specify Details: Clearly define beneficiaries, set terms for distribution, and outline the powers and responsibilities of trustees.

❌⚖️Avoid Ambiguities: Vague language or omissions can lead to disputes among beneficiaries or legal challenges, potentially dragging your estate into court.

🤔🛡️Consider Contingencies: Prepare for unexpected scenarios by including contingency clauses. This helps manage unforeseen changes such as the incapacity of a trustee or beneficiary, ensuring the trust continues to operate smoothly.

✍️💲Document Trustee Compensation: If the trustee is to be compensated, clearly state the compensation terms to prevent disputes and ensure transparency.

✅💰The Importance of Proper Funding

Funding your trust is a crucial step in the process. Unfortunately one of the most common mistakes we see is trusts left unfunded. An unfunded trust is just an expensive stack of paper. But a properly funded trust enables the primary benefits to be realized. Two of those benefits are:

🚫 Avoiding Probate: By transferring assets like real estate, bank accounts, and investments into the trust, these assets bypass the lengthy and public probate process.

🔐 Immediate Access: Proper funding ensures that trustees have immediate access to the assets for distribution according to the trust's terms upon your passing.

The good news is that funding the trust is not difficult, but it does require some guidance and intentionality. Here are a few steps to insure your trust is properly funded:

🏠➡️Title Transfer: Assets must be legally transferred to the trust. This involves changing titles and deeds into the name of the trust. To transfer real estate into the trust, you must prepare and sign a new deed that transfers ownership from yourself as an individual to yourself as the trustee of the trust. This deed then needs to be recorded with the local county recorder’s office. Depending on your state, there may be forms and fees involved.

🔀📄Change Account Registrations: For assets like bank accounts, investment accounts, and vehicles, you need to change the title or ownership to the name of the trust. This typically involves presenting a copy of the trust agreement to the financial institution or agency and completing their required forms. It's essential to ensure that all paperwork reflects that the asset is now owned by the trust.

👪🎯Update Beneficiaries: For certain assets, like life insurance or retirement accounts (e.g., 401(k), Roth IRA), you can designate the trust as a beneficiary. This doesn't change the ownership of the asset while you're alive but ensures the asset will be transferred to the trust upon your death. This is particularly important for coordinating these assets with your overall estate plan.

📊🔄Monitor and Update: Maintaining accurate and up-to-date records of the assets held in the trust is crucial. This includes documenting any additions or removals of assets. Regularly reviewing the trust with your estate planner or attorney is also recommended to accommodate any changes in your life circumstances or in the law that might affect your estate planning.

If you’ve made it this far you are well on your way to having a revocable trust that will accomplish your objectives. Below are just a few more steps that will supercharge your efforts.

📚Comprehensive Planning with Ancillary Documents

In addition to a revocable living trust, comprehensive estate planning should include other essential legal instruments to cover all aspects of your life and legacy:

📝 Powers of Attorney: Designate a trusted person to handle your financial decisions if you're incapacitated, ensuring continuity in managing your financial affairs.

🏥 Healthcare Directives: Outline your preferences for medical care and appoint someone to make health decisions on your behalf if you are unable to do so. This ensures that your health care wishes are respected and followed.

🔗 Coordinating Documents: Ensure your trust is aligned with these other estate documents and accounts. This prevents conflicts and oversights that could complicate the administration of your estate.

⚖️🧭Legal Guidance and Estate Alignment

To ensure your estate plan is both effective and compliant, seek professional advice:

👩‍⚖️ Professional Assistance: Engage experienced estate planning attorneys to draft and review your trust documents. They can provide crucial insights and ensure legal compliance.

🔄 Annual Reviews: Regularly review and update your estate plan to reflect any changes in laws or personal circumstances. This keeps your plan relevant and robust, adapting to your evolving needs.

😅Conclusion

A revocable living trust is a versatile and valuable tool in estate planning, offering streamlined asset management and privacy benefits. However, its effectiveness heavily relies on proper setup, funding, and maintenance. By addressing common pitfalls such as inadequate funding, vague documentation, and failure to update, you can ensure that your estate is managed and distributed exactly as you intend. Regular reviews and expert advice are key to leveraging this tool effectively, providing peace of mind and securing your legacy for future generations. 

Your team at Sequoia Advisor Group is here to help you navigate this process. Call us today at 502.576.3440 or email us at info@sequoiaadvisorgroup.com to get started. 

This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.