You make your will and trust. The real test for whether they worked or not only comes after you die. Between now and then you have to keep your will and trust updated. Reader Steve kindly shared his experience in maintaining his parents’ estate plan and executing the plan after they passed away. Here’s the guest post from Steve:
Funding the Trust
The attorney handled getting my parents’ home transferred to the trust. He wrote letters for transferring life insurance policies, bank accounts, and brokerage account to the trust. My parents signed those letters, with necessary attachments, and mailed them in.
I later found that some insurance policies and particularly broker/financial accounts had not completed the title transfers. I had to follow-up with the brokers’ and insurance companies’ back office to get the accounts and policies transferred. It’s very important to follow-up on this. The job is not over until you see account statements titled properly in the name of the trust.
Their car was not transferred to the trust. Some experts advise not transferring ownership of assets like cars to trusts, for liability reasons.
Moving To Another State
When my parents relocated to my state, we had another estate planning attorney review the trust and other documents to see if changes needed to be made. The trust document did not have to be changed, but I believe he recommended revising the healthcare power of attorney and the general power of attorney to comply with this state’s laws.
What the Trust Did and Didn’t Do
The trust reduced my parents’ state estate tax bill, after both of them died. In years since, state estate tax law changes have eliminated this benefit.
The trust allowed faster disposition of assets and distributions to beneficiaries than their non-trust assets which were controlled by probate.
The trust also allowed more privacy than for non-trust assets.
However, the trust did not eliminate the need for an attorney. The trust was complex enough that when my parents died, I needed to consult an attorney to understand proper steps. Also, laws change and a trust established earlier may need to be reviewed/updated over time.
The trust did not eliminate probate and the related costs. Assets outside of the trust such as personal effects, automobile, auto insurance policy refunds, other miscellaneous post-death income get included in the probate estate, even if the will says such probate assets “pour over” into the trust. This means filings with the court, and approvals from the court.
The trust did not simplify tax preparation. Once a trust owner dies, the trust becomes irrevocable and a separate tax entity, requiring trust income tax returns if the post-death income is over a small amount. Same for estate income tax returns for income from the probate estate. These are income tax returns, not estate tax returns.
The trust did not simplify acquiring control of assets in the trust. When the trust owners die, getting distributions from broker accounts and insurance policies titled in the trust takes extra paperwork and hassle. I needed not only the death certificate, but documents relating to the trust. With some financial institutions, this can take a lot of follow-up.
Other Lessons Learned
1. Choosing the trustee. The paralegal at the attorney’s office told me that the most important part of the term “trustee” is trust. With little supervision by the court, an untrustworthy trustee has the ability to misuse trust assets. Pick your trustee carefully.
2. The more the trustee and the executor know about the details of the trust and the other estate planning documents, the better. Because my parents lived locally and they involved me before they died, I was able to understand the situation and their wishes.
3. A middle class estate took about a year to settle and distribute all assets from the trust. There were no conflicts or problems. It was just the time required to do the steps required.
4. Make sure original, signed copies of the trust documents and other estate documents are in a safe place, and survivors know where they are located.
5. The role of an attorney at death. The attorney’s staff billed on an hourly basis. I told the attorney I would handle gathering information, dealing with financial institutions, and other paperwork, except any filings for the court. The attorney handled court filings, and preparation of the state estate tax return. This separation of duties reduced attorney fees. I had the time and knowledge to do this.
6. Watch out about naming co-trustees and co-executors. Name successor trustees/executors instead. Settling a trust and estate with multiple trustees/executors needing to understand and sign documents will slow things down.
7. Some wills are considered self-proving, meaning that they can be filed with a court with relatively little hassle. If the will is not self-proving, it will likely need an attorney to get it accepted by a probate court. Ask your attorney about this.
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Paul Weathers says
Nice article. It seems very complex and costly. The takeaway seems to be involvement in all aspects of the process by all parties.
It would be nice to see an article for maintaining an executing an estate plan without a trust using a will, beneficiaries, PODs, TODs etc. and avoiding probate.
Harry Sit says
Steve did say “The trust allowed faster disposition of assets and distributions to beneficiaries than their non-trust assets.” We will need another reader to share their experience in settling an estate by beneficiaries, PODs and TODs.
donald harrison says
Interesting you found it so cumbersome. I have settled one estate that involved a trust and will.
The parts in the trust were very easy.
I was able to file a single income tax return for the combined trust and estate. Distributing assets from the trust brokerage accounts to the testamentary trusts set up in the revocable living trust was easy. I gave the broker a form indicating what assets were to go where and that was that.
Cotrustees do not have to all sign every document. That decision is made when you set up the trust. You can have it so that only one of the trustees need sign. The problem with successor trustees is proving that the condition under which they become active has occurred. The only time it would make sense is when you had some affirmative reason not to have the other person or entity involved early. Say you have a bank as your successor but you would have to start paying it as soon as it became a co trustee.
It was a long process, not because of the trust but waiting to make sure all legitimate bills for the deceased had been submitted. I did not want to empty the trust account until I was sure everything had been paid. The longest delay by far was in waiting for the estate tax return to be approved. It took them about a year to look at the return, then they made it clear that they had lost many of the supporting documents. I had to submit copies of them so they could review it. That took months more.
I also hired an attorney who billed by the hour. Most of the work was done by a paralegal.
TOD POD is a terrible alternative. If everything passes that way one could end up with no money in the estate to pay final bills. That means the executor would have to chase the heirs to collect the money needed to close the estate. It could be a disaster.
Millie Hue says
Thanks for helping me understand that moving to another state will require you to have some things changed which will need the power of attorney. With that in mind, I will tell my best friend to seek a lawyer first. This is because he has been transferring from one state to another for years due to the nature of his work. Now that he plans to start working with his wills and trusts due to his medical condition, it would be helpful for him if he knows this information.