Do you know some of the common mistakes made with Living Trusts? The #1 mistake according to Beck & Lenox Estate Planning and Elder Law, LLC, is not putting your assets into the name of the trust. If you fail to retitle your assets into the name of the trust, you basically paid a lot of money for a piece of paper. Your trust is empty. This article focuses on your home. If it hasn’t been transferred, it’s not covered, says Yahoo Life’s recent article entitled “Why You Should Put Your House in a Living Trust.”
Let’s look at a few of the errors people make when dealing with trusts:
- Failing to notify tenants of the change in ownership. If you’re retitling a two- (or more-) family home into the trust, and that property has rent-paying tenants, inform them about this change in landlord for rent payment purposes. You will also have to set up a bank account in the name of the trust for rent deposits.
- Not notifying the insurance company of ownership change. Tell your home insurance company about changing the property owner from an individual(s) to that of a trust. If you don’t, the insurance company could deny your claim because the actual property owner—your trust—wasn’t insured.
- Not notifying the bank holding the mortgage of the intended transfer. See if your mortgage has a “due on transfer” clause. That means you’d have to pay the mortgage balance, if you transfer the home from yourself to the trust. Getting the bank’s consent for the transfer prior to its execution can avoid this. When you transfer the home into a trust, it also may be more difficult to secure additional loans against the home once it is contributed to the trust.
Here are a few benefits you may not have considered:
- Ease of transfer to same sex partners. Because a trust is a contract, it generally won’t go through the probate process—part of which includes notifying your relatives after your death. Even if some relatives don’t approve of the decedent’s sexual orientation and want to stop the transfer of property to their life partner, when the decedent’s assets are in trust, they won’t be probated. As a result, relatives won’t be contacted. The trust lets the settlor’s life partner receive the trust assets without interference from the decedent’s relatives.
- A trust may be a simpler way to title assets in your new name. If you have informally changed your given name (i.e., not legally), a trust can be an easier way to retitle your assets.
- Protecting benefits for special needs individuals. If you have a family member with special needs or who is receiving government services/benefits, such as SSI or disability, leaving your home to him or her outright can cause issues with continuing these services and funds. You can protect and preserve those benefits and still leave an inheritance by placing your home into a Special Needs Trust.
Most people do not realize the thought process that goes into creating the proper trust for their needs. Common mistakes made with living trusts can derail the best plans to protect your assets for the intended beneficiaries. Find a good attorney (like the ones at Beck & Lenox) who will give you a complimentary consultation to discuss your needs and interests. Having a skilled legal partner to set up a trust for you and to remind you of important next steps is well worth the small investment you will make.
Reference: Yahoo Life (Jan. 10, 2022) “Why You Should Put Your House in a Living Trust”