9 Common Revocable Living Trust Errors Explained

[00:00:00]hey estate planning attorney paul rabale here and in this video we're going to talk about nine yeah count on nine living living trust mistakes okay here's the background it seems like if there's one most popular most talked about uh topic or item when it comes to estate planning it's the one that you know estate planning lawyers get a lot of questions about it's the one where lots of articles are written about this it's the one where lots of books are written about it and quite frankly it's the topic where lots of videos are made and consumed it's the whole concept of the using the revocable living trust to avoid probate or as we call it in louisiana succession when somebody passes away and i kind of feel like the reason it gets so much attention is because i think not not just the wealthy not the people with the just the people with the large estates but the middle class what appeals to them is that ability to make their estate settlement simpler for their survivors by eliminating the need for all of the court and lawyer involvement that's required when you pass away with assets in your name and we have to get lawyers and judges involved and get court orders in order to get those assets transferred so a lot of appeal to it but like anything else in life if you're going to do something you need to do it right and so mistakes get made and when mistakes get made things don't happen as they were intended so i'm going to give you nine mistakes that people make when they establish living trust so maybe you if you if you take advantage of that uh opportunity to avoid all the uh court and attorney involvement in your estate settlement maybe you won't make any of these nine mistakes the first mistake it's the one in any list of living trust mistakes this is always on the list it's the failing to what we call fund the living trust i'm gonna link you to a video right up there it's called if you have a living trust watch this now it's the most watched video that i've made of something like 500 videos and it'll get give you a good idea of what it means to fund a living trust but essentially not only is it important that you create your trust but it's also important that you transfer your home and other investments and other assets that would have to go through the court process when you die it's important to get those transferred to your trust so they won't be frozen and your trustee perhaps a family member can then distribute those assets from your trust after you pass away without the court and attorney involvement so failing to fund the trust is mistake number one mistake number two is the trust is poorly written this trust instrument is going to control what's going to happen to what you have not only for the rest of your lifetime but even more importantly what happens when you pass away and beyond so it needs to be worded properly you know when you think of having heirs if you have a trust they're called bet trust beneficiaries and when you list your beneficiaries you will list income beneficiaries and principal beneficiaries you need to get all of that right if you're a married couple setting up a trust together you've got to really nail the what happens when the first spouse dies to make sure there's no conflict at that point also in your trust you'll be making lots of trustee and successor trustee appointments you'll be designating trustee powers trustee duties so you want to make sure it's well written things are more much more likely to go smoothly if it's well written mistake number three is thinking that your revocable living trust assets somehow protect you in case you go to a nursing home so a lot of middle class people out there they are worried that if they go to a nursing home they're going to have to spend their life savings and sell their rental property and go through their iras spending them at the clip of about six to ten thousand dollars a month and they'll have to consume all of that until they get down to less than two thousand dollars and then long-term care medicaid kicks in and pays that nursing home expense well some people mistakenly believe that if they transfer their assets out of their name into their revocable living trust then hey those assets aren't in their name anymore and they're protected from nursing home expenses but that's not correct so because a revocable living trust enables you to change the trust undo the trust remove the assets from the trust and book put them back in your name because you have so much control over those trust assets the medicaid rules say sorry but since you have so much control over those assets you've got to exercise that control if you go in a nursing home and you've got to consume all of those assets before medicaid will pay for the nursing home mistake number four similar thinking that your revocable living trust assets protect you from liabilities or creditors so a lot of people out there they've set up living trusts but along the way you know they've they've they've you know incurred significant credit card debts some people not only five figures six figures of credit card debt many people who have trust in the you know in the in when they've done business over the years they've signed certain personal guarantees so they're personally responsible for business debts that sometimes get out of control so real important that you realize that moving your assets into a living trust or a revocable living trust doesn't give you any credit or protection so be aware of that mistake number five is not having the other ancillary documents in addition to your trust instruments so that trust instrument can't buy stand by itself as a comprehensive you know estate program you have to have all the ancillary stuff for example everybody who sets up a trust also establishes their power of attorney or durable power of attorney now sure if your home and other assets are titled in the name of your trust and you become incapacitated then that successor trustee that you named in your trust instrument can transact all of those trust assets for you but you're likely not only to have assets in your trust but you're also likely to have assets still in your name such as a traditional ira or a roth ira those don't get transferred to your trust so you need to have that durable power of attorney in place so that your agent can then transact those assets that are in your name and then that person may be the same person as the successor trustee of your trust who would transact trust assets when you become incapacitated and then there's all the healthcare power of attorney who who you'd want having access to your medical records i'll post a video about the uh one of the living will videos that i made about life support machine decisions and then you know what i'll also point you to another poor over will video which everyone who sets up a living trust they create this poor overwhelm just another term for a last will and testament but with the poor over will it usually says something like and i'm being the layman's term here it might say you know if i die with something in my name that's not in my trust i want to train i want it transferred to my trust when i die but your survivors will have to go through the probate process to get those assets transferred to your trust when you die hence the importance of funding your trust mistake number six is realizing that your living trust doesn't control where your iras life insurance and annuities go when you die those assets are controlled by your beneficiary designation let me give an example of how that could be a real problem let's say grandpa comes into the lawyer's office to do his trust he has a three million dollar estate and he has thought all uh all for years he's always told his grandchildren you know what i have ten grandchildren i love my grandchildren guess what guys when i die i'm gonna give each of you a hundred thousand dollars that'll be that million dollars that'll come off the top my other three kids can split the remaining two million dollars i have a three million dollar estate grandkids get excited grandpa that's so nice of you that'll enable me to make a down payment on my house or buy a car or go to college or go to law school or medical school everybody's all excited grandpa goes in and sets up sets up his trust he tells the lawyer yeah i want to draft my trust so a hundred thousand dollars goes to each of my 10 grandchildren the rest can go to my my uh my three children lawyer writes it up that way that's great he transfers his house to his trust he transfers some other financial accounts to his trust but the bulk of grandpa's money is in his iras so his house is worth three hundred thousand dollars the other financial accounts that he put in the trust are worth about fifty thousand dollars but his ira is worth two and a half million dollars and that doesn't go in his trust grand paul dies there's only three hundred and fifty thousand dollars of assets there to fund the ten one hundred thousand dollar transfers that grandpa directed in his trust so guess what those grandchildren aren't gonna get a hundred thousand dollars at most they'll get thirty five thousand dollars a piece because there wasn't enough tr assets in the trust to fund those bequests because he had grandpa had named you know when he set up his iras he simply named his three kids as his beneficiaries they're gonna get all of that money so realizing there needs to be some coordination between your will your trust and your beneficiary designation items that's a big mistake mistake number seven is along the same lines naming your trust your living trust as the beneficiary of your ira when you don't need to so sometimes dad will come in he says i want to keep things simple i've got three adult children they're all adults they're all responsible they all get along great when i die they can handle the money they can do whatever they want to they're better at managing money than i am so really the in and and dad creates his trust to put in his house and all those probate assets and he asks whether he should name his trust as the beneficiary of his ira and perhaps in those circumstances i might tell him you know what dad just name your three children as each getting one third of your ira when you die that way when you die the kids can bring a death certificate to your ira financial institution the financial institution will set up three new inherited ira accounts they'll move the money from your ira into the three equal inherited ira accounts that'll be done with instead of routing the ira through the trust then back to the kids you see when somebody dies now everybody's got to have their say-so you've got three kids at the table you probably have a lawyer an accountant a financial advisor the simpler you can make it the simpler you know the better it is so now if you have children with special needs children who can't handle money it may be appropriate to name a trust or even your living trust as the beneficiary of your ira but you know there's certa there's many circumstances where you don't need to name a trust as a beneficiary of an ira mistake number eight is failing to update your living trust most people assume that they have to update their living trust all of the time in fact i'm going to link you to a video great video that i made that talks about when you don't need to amend your trust however you do need to update your trust when you when you for example change your mind about how you want your trust assets dispersed when you pass away or if you want to change who that trustee will be when you pass away who will be in charge of dispersing those trust assets those are common and typical examples of of times when it is important that you update your trust and then maybe the biggest mistake that people mistake i saved it for the last mistake number nine gigantic mistake it's failing to subscribe to this youtube channel and punch and um and and hit the notification bell that way you won't miss anything you're probably going to live another maybe several decades how dare you miss out on some of this info information make sure you don't make mistake number nine go ahead and if you haven't already hit the subscribe button and the notification bell and obliterate the like button that way youtube even sends my videos to more people and we all thank you for that all right so there you have it nine mistakes when people set up living trust we'll see you next time