Living Trust Maintenance is Key

Many people opt for a living trust over more traditional means of estate planning because of benefits such as:

• A smoother, shorter transition after death
• Lower costs of administration after death
• Flexibility during the grantor’s lifetime
• Greater ability to control how assets are used and distributed

Unfortunately, many grantors who plan to use a living trust as an alternative to a will overlook one very important step: trust maintenance.

Moving Property into the Living Trust

When a grantor sets up a living trust with the intention of using that trust to provide for beneficiaries after his passing, the norm is to transfer ownership of all titled property to the trust. For example, the trust might become the owner of:

• The grantor’s bank accounts
• The grantor’s motor vehicle(s)
• Real property belonging to the grantor
• Intellectual property belonging to the grantor

During the grantor’s lifetime, he acts as both trustee and beneficiary, meaning that using trust assets is pretty much business as usual. The grantor typically has unrestricted authority to use trust assets on his own behalf, meaning that he can sign checks, spend money, make purchases and sell assets just as he would have before the transfer.

It’s that flexibility that can lead to problems. Imagine, for example, that the grantor has placed his vehicle in the trust. A few years pass and he decides to buy a new car. Ideally, he’ll title the car to the trust upon purchase, but that doesn’t always happen. The vast majority of people are accustomed to purchasing a new car as an individual, and may do so automatically.

That’s not a problem during the grantor’s lifetime, but when he passes away it leaves an asset outside the trust. Depending on how the vehicle is titled, that one item may have to pass through probate.

Keeping Beneficiaries and Successor Trustees Up to Date

During the grantor’s lifetime, he will be the trustee and often the only beneficiary of the trust. For the living trust to do its job as a means of passing property after death, however, the grantor must name one or more successor trustees and one or more successor beneficiaries. The successor trustee will be responsible for administering the trust for the benefit of the successor beneficiaries.

The attorney creating the trust on behalf of the grantor will ensure that at least one successor trustee is listed, so that if the grantor passes away unexpectedly, the person of his choosing can immediately step in and take over management of the trust. The attorney will also talk with the grantor to ensure that all intended beneficiaries are listed.

Often, though, many years pass between the creation of the trust and the grantor’s passing. During that time, the successor beneficiary may herself pass away or become incapacitated. Or, relationships and priorities may change and the listed trustee may no longer be the right person to administer the trust in the grantor’s absence.

Similarly, the list of people the grantor wants to provide for after death may expand or shift. Some common occurrences that trigger this type of change include:

• Marriage
• Divorce
• The birth of a child
• The death of a beneficiary
• The marriage of a child
• The birth of a grandchild
• Estrangement from a beneficiary

Failing to update the trust when an event like the ones listed above occurs can have serious unintended consequences, making living trust maintenance a critical element in an effective trust-based estate plan.

Some changes in circumstances may also trigger a need to revise the terms of the trust. For example, if one of your adult children develops an addiction, you may want to continue to provide for that child, but not to directly transfer assets to her.

Keeping Your Living Trust Up to Date

To ensure that your living trust remains up to date and your loved ones are protected, create a trust maintenance plan. Some steps you may consider include:

• Talk with your trust lawyer to ensure that you understand exactly what types of property should be titled to the trust and how to accomplish that
• Talk with your trust lawyer about life events that should trigger a review of your trust
• List at least one alternative successor beneficiary
• Contact your attorney after a significant life event that may impact how you want your assets distributed
• Consider scheduling an annual “check-up” to make sure that your trust still reflects your intentions and make any necessary changes

If you have a living trust and haven’t revisited it, it may be time to review the terms and appointments, as well as ownership of property you’ve acquired since the trust was created, to ensure that your beneficiaries are fully protected.