Mistake #10 - Leaving Assets Outright to Your Beneficiaries
Just as mistake #8 pointed out the benefits of holding assets in a Marital Trust for the benefit of your spouse, lifetime trusts can also provide similar benefits to your other beneficiaries. How? Because the use of a lifetime trust will segregate the beneficiary's inheritance from their other assets, including their individual assets as well as marital and other joint assets. Thus, if the beneficiary is sued, the trust assets will be protected. Or, if the beneficiary gets married and later divorces, the trust assets will be protected. Or, if the beneficiary is still a minor or mentally disabled, then the trust assets can be invested and managed by someone else and will be protected. On the other hand, if you leave the beneficiary's inheritance to them outright or even at certain ages (such as 25, 30, or 35), then once it's in their hands their inheritance will become vulnerable to lawsuits, creditors, divorcing spouses, bad investment decisions, and, in the worst case scenario, a court-supervised guardianship if the beneficiary is a minor or mentally disabled.
Instead, consider setting up lifetime trusts for all of your beneficiaries. You can even make the beneficiary the sole Trustee at a certain age (such as 25 or 30). That way, when the beneficiary is younger their inheritance can be managed by someone else, but when they get older they can take over control of their trust fund and make their own decisions. This will give your beneficiaries a fighting chance to keep their inheritance for their own benefit and not for the benefit of their creditors, divorcing spouses, the government, or guardianship attorneys and courts.
Mistake #11 - Unfunded Revocable Trusts
Probably the most common mistake I run into when reviewing existing estate plans is a Revocable Living Trust that isn't completely funded. This usually comes in two extremes: (1) Trusts that aren't funded at all, and (2) Trusts that are almost but not quite fully funded.
In the former situation the problem usually stems from an estate planning attorney who simply doesn't provide any assistance or guidance to their clients with funding their trusts. (Yes, unfortunately there are some attorneys out there who will avoid helping clients fund their trusts so that their clients' assets must go through an attorney-supervised probate.) In the second situation, even if the clients understand the importance of funding their trusts and they manage to get some of their assets into their trusts, many will procrastinate or simply become frustrated or overwhelmed by the entire funding process.
I can't emphasize enough how important it is to get your assets into your Revocable Living Trust and update the beneficiaries of your life insurance and retirement accounts. Without taking this important step, your Revocable Living Trust will simply be an empty bucket waiting for your assets to fill it up after the time-consuming and costly probate process.
Mistake #12 - Unfunded Out of State Real Estate
When reviewing existing estate plans, the most common mistake that I see is #11 - unfunded Revocable Living Trusts. And this common mistake leads right into the final common mistake - out of state real estate that isn't funded into a Revocable Living Trust.
If you don't take the time to fund your out of state real estate into your Revocable Living Trust, then your loved ones will be faced with two or more probate estates. Why? Because the transfer of real estate after death is governed by the laws of the state where the property is located through an "ancillary probate" proceeding. Thus, real estate in your individual name at the time of your death will need to be probated in the state where it's located. And what if you own real estate in two, three, or even four different states? Then your loved ones will be faced with two, three, four or more probate proceedings, and you'll be adding significant time and cost to the settling of your trust because your loved ones will need to pay for multiple probate proceedings and multiple probate attorneys.
Particularly if your out of state property is titled in your individual name or as tenants in common with someone else, get the property into your trust. And don't be fooled into thinking that if you own real estate jointly with someone else that it will pass by right of survivorship to the other owner and avoid probate after you die. Most states default to tenants in common ownership if the deed doesn't specifically provide for rights of survivorship, and so your portion of the property will need to be probated. Check with an attorney in the state where the property is located to make sure that it's titled the way you want it, and, if not, have a new deed prepared and recorded.
Checklist of Twelve Mistakes