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Horizon Elder Law & Estate Planning Blog

Monday, January 17, 2022

Hidden Traps in Outdated Living Trusts

If you created a living trust 10 or 20 years ago, you probably need to update it to avoid problems for yourself and your beneficiaries. Even a living trust from five years ago could need some revisions if it is going to meet your current goals and needs.

A California estate planning attorney can review your document and explain to you the hidden traps in outdated living trusts. We can make the modifications needed to protect your loved ones.

You Have Outlived Some of the Beneficiaries of Your Trust

One of the inherent pitfalls in an outdated living trust is that you might have outlived some of the beneficiaries of your trust. Even if your document stipulates what happens if one of your beneficiaries predeceases you, it is always best to clean up the paperwork to avoid disputes among your loved ones.

There are additional reasons why you should review the beneficiaries you selected years ago when you had the trust made. If you have gotten married or divorced, you will need to address that situation in a new document. If you have new children or grandchildren, you would not want to accidentally disinherit any of them. You might have some new dear friends you would want to add to your trust.

The Tax Advantages of Your Existing Trust Got Changed by New Tax Laws

People often formulate their estate planning strategy, at least in part, based on the current tax laws. Most people prefer to minimize or avoid having to pay estate taxes with the money they would rather go to their loved ones. The tax laws have changed significantly in the last few years.

There might be ways of avoiding or minimizing taxes under the new tax laws to maximize the distribution line to your beneficiaries. The tax savings alone could make the revisions worthwhile.

Your Assets Do Not Match the Items Titled in Your Trust

The most beautiful living trust document in the world will be useless unless you have funded it by titling your assets in the name of the trust. Unfortunately, it is human nature to procrastinate. If you did not retitle the assets that you intended to be in your trust back when you created it, you will want to do so now.

Even if you diligently transferred the appropriate assets into the ownership of the trust when you created that document, here are some reasons why your assets might not match the items currently titled in your trust:

  • You inherited assets after making your living trust.
  • You bought assets after creating the trust and did not title them in the name of the trust.
  • You sold, traded in, or otherwise disposed of assets that used to be in the trust.

With the passage of time, many people accumulate assets they did not have years ago and dispose of others.

You Have Assets Titled in the Name of the Trust That Should Be “Payable on Death” (POD)

In nearly every situation, your retirement account should not be titled in the name of your living trust. This is particularly true with IRAs, thanks to the 2020 Setting Every Community Up for Retirement Enhancement Act (SECURE).

Typically, it is better to transfer retirement plans by naming a beneficiary and making the account “Payable on Death” (POD) or “Transfer on Death” (TOD). Your California estate planning attorney can evaluate your situation and recommend how best to handle specific assets.

Some of Your Beneficiaries Need Special Protections Now

In the years that have passed since you created your living trust, the circumstances of some of your beneficiaries might have changed. For example, one or more of your beneficiaries might now have a disability or special need.

If that individual inherits directly from your living trust, they could get struck off the rolls for public assistance and have to wait years to qualify again, if indeed they can qualify in the future. To avoid this harm to your loved one, you could set up a special needs trust that would protect the eligibility for government aid programs.

Whether you have an outdated living trust or would like to create a new estate plan, you will want to talk with a California estate planning attorney. Contact our office today for a free consultation.


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