Tag: trusts and estates

• The Biggest Mistake Made with Revocable Living Trusts

  

  Revocable living trusts are a highly versatile estate planning instrument. Unlike a will, the trust can assist with managing assets both during life and after death. But the trust is only as useful as the Settlor (trust creator) makes it. Sometimes trust Settlors make a huge mistake that causes the trust to lose many of…

  

  Revocable living trusts are a highly versatile estate planning instrument. Unlike a will, the trust can assist with managing assets both during life and after death. But the trust is only as useful as the Settlor (trust creator) makes it. Sometimes trust Settlors make a huge mistake that causes the trust to lose many of its benefits.

  What’s this biggest mistake that a Settlor tends to make? Failing to fund the trust.

  Let’s discuss this topic and how to make a revocable living trust work for you and your family.

  What Does it Mean to “Fund” a Trust?

  Funding a revocable living trust simply means placing assets into it. There are several ways to do this, depending on the asset type.

  For tangible personal property, there is normally a property schedule in the trust instrument. This schedule identifies certain types of items. This will generally be categories, such as:

  • Household goods
  • Furniture
  • Books
  • Clothing
  • Hobby and sports equipment
  • Jewelry
  • Decorations
  • Electronic devices

  Property listed in a schedule generally does not have any sort of registration or certificate of ownership. Listing out such assets is sufficient to make them trust assets.

  But certain assets need additional steps taken in order for the revocable living trust to hold them. Merely listing them out in a property schedule is not sufficient to place certain types of assets into a trust. This includes:

  • Real estate
  • Securities
  • Business interests
  • Bank accounts
  • Investment accounts
  • Vehicles

  These types of assets need an express update to the form of ownership.

  For real estate, this means executing and recording a deed from the owner to the trust. For bank accounts and investment accounts, they must be converted from individual ownership to trust (if the particular financial institution allows this, as not all do). Alternatively, the Settlor may need to name the trust as the beneficiary of such accounts.

  Business interests need an update to either the operating agreement, articles of organization, or corporate records to reflect trust ownership.

  The bottom line is that the signing ceremony is not the end of the journey. There is additional work needed in order to make the trust work properly.

  Why Do People Fail to Fund Their Trusts?

  

  Properly funding a trust takes a significant amount of work. After working with an estate planning attorney to draft and execute documents, it can be quite daunting to do even more work on the plan independently.

  It is a common practice for an attorney to draft and record the deed to a client’s primary residence that places the house into the trust. The attorney may also provide certain documentation to transfer ownership of business interests into the trust.

  But certain types of asset retitling require work by the client. Attorneys generally don’t update our clients’ bank accounts, investment accounts, etc. Nor do we update beneficiaries on life insurance, retirement accounts, and other transfer-on-death assets.

  This is part of the trade-off that comes with creating a revocable living trust. The default for many assets is that they will have to go through the probate process after the owner passes away. This means the time, hassle, and expense of the court system.

  The trust avoids that. But it takes work upfront to actually accomplish the goal of making the trust function properly.

  Consequences of Failing to Properly Fund Revocable Living Trusts

  The purpose of the trust, for many people, is to bypass probate. The successor trustee will privately administer the trust according to its terms after the Settlor passes away. This makes for a quite efficient transfer and management process.

  But if the Settlor does not fund the revocable living trust, then many assets will likely end up subject to probate. This defeats the entire purpose of the trust and incurs costs that could have been avoided.

  A trust-based estate plan usually includes a pour-over will to catch assets that are not in the trust. At least with the pour-over will, the final destination ends up being the trust. The trustee then manages the assets according to the trust’s terms.

  But the pour-over will is supposed to be a backup, not the main transfer mechanism. The effect of failing to fund the trust is that the total cost of the estate plan—upfront and on the backend—may be more than doubled by also incurring greater probate expenses.

  Plus, if there are concerns about third-parties coming in and throwing a grenade into the process, this will be much more likely because of the public nature of probate.

  Final Thoughts on Funding Living Trusts

  

  While revocable living trusts are excellent estate planning tools, they’re not foolproof. Whoever creates a trust needs to understand what his or her next steps are after executing the trust instrument. This, along with whatever other documents the attorney drafted.

  Connell Law, PLLC understands that the additional work needed to fund revocable living trusts can be challenging. We provide our clients with post-execution checklists to help guide them on the exact steps needs to make their plan work.

  With this in mind, remember that having a professional guide you in creating and carrying out a plan helps things go much more smoothly than going at it alone. For assistance with your estate plan, or in carrying out a deceased loved one’s plan, contact us for a free consultation.

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• Executor vs Trustee: What’s the Difference?

  

  When it comes to estate planning, two crucial roles often come into play: executor and trustee. Both positions involve the administration and management of a person’s assets. But they differ in their functions, responsibilities, and the contexts in which they operate. While there is some overlap, the roles of executor vs trustee are distinct. Let’s…

  

  When it comes to estate planning, two crucial roles often come into play: executor and trustee. Both positions involve the administration and management of a person’s assets. But they differ in their functions, responsibilities, and the contexts in which they operate. While there is some overlap, the roles of executor vs trustee are distinct.

  Let’s explore some of the similarities and differences between these two positions and how they play into a person’s estate plan. We’ll discuss the fiduciary nature of these positions and the weight of holding these titles and their respective responsibilities.

  Executors: Managing Probate

  An executor—not to be confused with an executioner—is an individual appointed in a Will to carry out the deceased person’s wishes regarding their property. The executor’s primary responsibility is to manage the probate process. This ensures that the decedent’s debts are settled and the remaining assets are distributed to the Will’s named beneficiaries.

  The executor will need to several things during the probate process. This includes:

  • Filing a petition to probate the Will,
  • Filing an inventory of assets held by the decedent,
  • Notifying creditors of the decedent’s death,
  • Paying debts that creditors file claims for,
  • Conducting an accounting,
  • Distributing funds and property to the beneficiaries, and
  • Closing out the estate.

  In Tennessee, the executor is an office held solely for the management of the probate process. It is a limited position that is only supposed to last as long as needed to administer and close out the estate. Tennessee law states that probate should generally not take more than 15 months.

  Once the beneficiaries receive their legacies and the probate court orders the estate closed, the executor does not have any further role to play.

  Trustees: Administration of a Trust

  

  A trust instrument generally creates the office of trustee. This can be created during one’s lifetime (living trust), or by a Will at death (testamentary trust). The trustee will often have certain responsibilities that generally go beyond merely distributing property to beneficiaries upon a person’s death.

  Trusts, especially revocable living trusts, have broad grants of power to allow the trustee to manage assets the trust holds. For our purposes, let’s consider a revocable living trust with one Settlor (creator).

  The Settlor usually occupies three roles while living: Settlor, Trustee, and Beneficiary. The Settlor will manage the trust’s property for him or herself during life. The trust instrument will name specific beneficiaries to whom trust property will go after the Settlor passes away.

  The trustee will generally have powers to manage trust property during incapacity. Well-drafted trust instrument name Successor Trustees, as well. So, if our Settlor is in a coma after a major car crash, the Successor Trustee will manage trust assets on his or her behalf until the Settlor has recovered. This is similar to how a durable power of attorney for property functions.

  The trustee must adhere to the trust instrument’s instructions. This may include investment of funds on the beneficiary’s behalf, paying for higher education, assisting with major life expenses, and/or distributing at a certain age or life milestone.

  The main point is that the trust instrument will state its purpose, and the trustee must carry out that purpose as a fiduciary. He or she must follow those instructions closely and use good judgment in making decisions regarding management of funds. Decisions must be for the benefit of the beneficiary only and not for the trustee’s benefit.

  Similarities Between Executors and Trustees

  Whether executor or trustee, both roles are fiduciary positions. This means the one holding the office has a legal duty to certain people to act in their best interests. Executors and trustees must act with loyalty, competence, impartiality, and prudence in carrying out their duties.

  Both roles require the office-holder to follow another person’s instructions. Those instructions are typically in a document. If the executor or trustee fails to follow those instructions, the beneficiaries of the estate or trust could sue for breach of fiduciary duty.

  Additionally, the one naming who will occupy these positions generally does so in a written document. The Will names the executor, and the trust instrument names the trustee. For those who pass away without a Will, the one who handles the estate is an administrator (a subject for another article).

  Differences Between Each Role

  

  The differences between an executor vs a trustee are more numerous than the similarities. As noted above, the position of executor is supposed to be a short-term office. The primary goal is to oversee the transfer of assets to other people and to do so in an expeditious manner.

  On the other hand, a trustee may occupy the office indefinitely. It will depend on the purposes of the trust. One trust may direct the trustee to immediately transfer trust assets to the beneficiaries. Another trust may direct the trustee to make support payments to beneficiaries over a lifetime.

  Executors have some leeway on how they administer the decedent’s estate, but not much. Once the person dies, the Will comes into effect and the executor must generally follow the terms as written.

  But a trustee may have significant discretion in carrying out the trust’s objectives. This can include choice of investments, whether to make distributions, or even to create a new trust instrument and “decant” the trust’s assets into a new trust.

  What it boils down to is that executors have a smaller amount of discretion with their decision-making. Trustees will usually have wide discretion in carrying out their duties as trustee.

  Final Comments on Executors vs Trustees

  In an estate plan, it’s important to know how executors vs trustees fit into things. Some estate plans may just involve an executor. Others may have both executor and trustee. In many plans, the same person may occupy both roles.

  But for those involved, including the creator of the plan and the ones named as the officer-holders, they all need to know their place in things. They need to know what their duties are and who to contact for assistance in carrying out the plan.

  Connell Law, PLLC helps residents of Rutherford County and throughout Middle Tennessee with their estate planning needs. We take an educational approach to our practice, helping our clients understand the ins and outs of how their plans will work.

  Reach out to us today to discuss executors and trustees further, along with your other estate planning needs. We’re here to help you plan today for a more peaceful tomorrow.

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