Comprehensive estate planning is a lifelong process. There are always reasons to review and update your estate planning portfolio, including major life events life births or divorces. Not only does estate planning need to be a part of adjusting to major life changes, but the components of your estate plan can be used to protect your assets as well as those of your loved ones during these types of life events. However, one common pitfall of a comprehensive estate plan is when individuals own or acquire property outside of a trust. Doing so can result in unintended tax consequences as well as risk exposing your property to the probate process and/or creditors.
Property and Revocable Trusts
When you own property, placing that property in a revocable trust might be a good move for you based on your individual circumstances. Some benefits of a basic revocable trust include allowing assets within that trust, including property, to avoid the probate process. The probate process can be time-consuming and add unnecessary expense to settling an estate. It is also possible that placing assets like property in a trust will allow your family members to retain control over those assets if you are incapacitated to the point where a court may wish to appoint an outside guardian. Assets not within a trust are subject to probate and the potential loss of familial control in case of your incapacitation.
As such, keep in mind that whenever you acquire new property, you may want to make that property part of an existing trust or you may want to consider creating a new trust. An individual can have more than one type of trust, and many individuals do. Different types of trusts can offer different benefits in protecting your property, and some can also shield it from creditors that may otherwise be able to collect on outstanding debts at the time of your death. When you use a revocable trust as your trust vehicle, you may also have the option of editing the trust such as changing beneficiaries or adding certain appropriate clauses to address life events. If you have property in a trust with your child as beneficiary and your child gets married, you may need to adjust the terms of the trust to continue to fulfill your goal of allowing your child to inherit the benefits of the trust but limiting the ability of spouses to access those assets. This can continue to protect trust assets even in the case of a future divorce between your child and their spouse.
An Important Reminder
Trusts might be an appropriate vehicle for many individuals to protect their assets and even avoid unintended tax consequences. However, they are not necessarily right in every situation. It is important to work with an experienced estate planning attorney in determining the components of your comprehensive estate plan. If you do decide that a trust is right for you, it is important to remember that you cannot simply establish a trust and leave it be. You need to monitor the law for any applicable changes that could affect your trust, which is why it is important to maintain a relationship with an experienced estate planning attorney. It is also important to update all of your estate planning documents to reflect any life experiences or changes that may happen along the way. Failing to do so can result in financial hardship for your heirs as well as a much longer, more difficult process involved in the distribution of your assets in the way you have chosen.