9 Potential Problems With Revocable Living Trusts
Problem #1: Choosing the wrong trustee. Many people believe that you must name your bank as your trustee, but this is not the case. I recommend you act as your own trustee so you continue to manage and invest your assets, just as you do now. If you are married, you and your spouse can serve as co-trustees. If you do not choose to serve as trustee, you may hire a professional fiduciary who is not affiliated with a bank or trust company.
Problem #2: Leaving your Trust empty. A Revocable Living Trust is like a safe deposit box. It’s a good place to put your valuables, but it won’t do any good if you leave it empty. It’s not uncommon for people to have a lawyer draw up their Trust and then, years later, still have to go through probate. Why? Because neither they nor their attorney ever put their assets into the Trust. Your property must be put into the Trust. But don’t worry. The process of retitling assets is easier than you think.
Problem #3: Initial cost. A Revocable Living Trust is more expensive to set up than a simple Will. But, in the long run, the cost will be much less because the Revocable Living Trust allows you to avoid probate, and Court supervised estate administration, guardianships and conservatorships.
Problem #4: The potential for poor management. You could find that the person you selected to manage your affairs is not a good manager. Your choices for successor trustee(s) should be family members or friends you can trust. Corporate trustees, such as banks, are also an option. But, even if you don’t put your assets into a Trust, you could still have a problem with management of your assets.
Problem #5: Refinancing real estate may be inconvenient. Some mortgage companies and banks require that you take real estate out of your Trust before they will place a new mortgage on your property. Once the financing is complete, you simply transfer the property back into your Trust. If you tell your mortgage company or bank in advance, usually they will handle this for you as part of the same transaction.
Problem #6: Keeping a list of assets in your Trust. Some people don’t like to keep track of assets they put into their Trust. Others don’t mind this small amount of extra work. When you want to add something to your Trust, you simply title it in the name of the trustees and add it to your list. I assure you the benefits of having a Revocable Living Trust far outweigh these minor inconveniences, and keeping an up to date list of your assets ensures that all of your assets are properly managed in the event of your incapacity and distributed as you intended upon your death.
Problem #7: Opening a new bank account. Some banks will require you to close your current bank account and open a new bank account if you transfer the account into a Trust. This is a matter of the bank being uninformed, and does not happen often. If you have substantial direct deposits or automatic debits, it will be necessary to see that the new account is functioning properly before closing the old account.
Problem #8: Imprinting on your checks. Some banks will require that you put the name of your Trust and trustees on the checks. You can respond to this in one of three ways. (1) The name of your Trust and trustees can very closely match your own name and be abbreviated in many respects. (2) You can order checks from a printing company with anything on them that you choose. Or (3) you can print your own checks with very simple and inexpensive computer software packages.
Problem #9: Transferring Real Estate that has an existing mortgage. Banks and mortgage companies cannot legally call most mortgages due when you transfer your primary residence into a Trust. Still, you should make sure that your lender understands this so you won’t have a problem when the property is transferred. In this way you avoid having to fix a problem after the fact.
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M. Celeste Luce
Asset Protection & Estate Planning Attorney