Why is estate planning essential?
Estate planning is essential for many reasons. First, it can help you avoid probate. Probate is the legal process of distributing a person’s assets after death. It can be expensive and time-consuming and tie up your assets for months or even years. Second, estate planning can help you protect your assets from creditors. If you have a lot of debt, your creditors may try to seize your assets after you die. Third, estate planning can help you minimize taxes on your estate. Your estate may be subject to hefty inheritance taxes if you don’t plan. Finally, estate planning can give you peace of mind. Knowing that your affairs are in order and that your loved ones will be cared for after you’re gone can provide great comfort during difficult times.
What is a Trust?
A trust is a legal arrangement in which one person (the trustee) holds property for the benefit of another person (the beneficiary). Trust administration is the process of managing a trust. The trustee is responsible for carrying out the terms of the trust and must act in the best interests of the beneficiaries.
There are a few basic steps that must be followed to administer a trust:
- The trustee must identify and collect all of the assets held in the trust.
- The trustee must pay any debts and expenses that are owed by the trust.
- The trustee must distribute the trust’s assets to the beneficiaries according to the terms of the trust.
Problems During Trust Administration
One of the most common problems during trust administration is when the trustee tries to take control of the trust assets without the beneficiaries’ consent. This command can happen if the trustee is named in the trust document as having sole discretion over trust assets or if the trustee believes it is in the best interests of the beneficiaries to take control. If the beneficiaries do not agree with the trustee’s decision, they may challenge it in court. Proper trust agreement provisions can avoid most, if not all, of these complications.
Another common problem during trust administration is when the trustee needs to follow the terms of the trust document. This mistake can happen if the trustee needs to understand the terms of the trust. Another reason could be if the trustee tries to change the terms without getting approval from all of the beneficiaries. If a beneficiary challenges the trustee’s actions in court, the court will likely order the trustee to follow the terms of the trust.
How Does a Professional Trust Administrator Help
A trust administration lawyer helps the trustee administer the trust. This assistance includes understanding the terms of the trust, meeting deadlines and communicating with beneficiaries. The lawyer also serves as a fiduciary, meaning they act in the best interest of the beneficiaries.
The 4 Most Common Estate Planning Mistakes
One of the most common estate planning mistakes is needing an up-to-date estate plan. An estate plan is a document that outlines how you want your assets to be distributed after you die. Without an up-to-date estate plan, your beneficiaries could end up with nothing, or your estate could be heavily taxed.
Another common mistake is not naming a beneficiary for your trust or not updating your beneficiary designation form every three to five years, which could include giving all of your assets to your heir.
Another mistake people make is not appointing a power of attorney. A power of attorney allows someone else to make financial decisions on your behalf if you become incapacitated. Without a power of attorney, your family could have to access your assets through the court system.
Finally, people often need to remember to update their life insurance beneficiary designation. If you don’t update your beneficiary designation form, your life insurance policy could be paid out to someone other than your intended beneficiaries.
Does Transferring Property to a Trust Protect It From Creditors?
Trust assets are typically subject to the claims of the trustor’s creditors; however, there are many forms of trusts and other estate planning entities that do protect your assets from claims of creditors.
(Each step of administration can create serious pitfalls and problems if ignored)
When administering a trust, one must be aware of the potential pitfalls at each stage. First, trustees can be held personally liable if they fail to follow the trust document or make distributions under the terms of the trust. Second, beneficiaries may take legal action if they are not treated fairly. Third, the estate may be subject to probate if the trust is not fully and properly funded or the assets are not correctly titled. Understanding these potential pitfalls can help avoid them and keep the trust running smoothly.
Pitfall #1: Procrastinating or ignoring critical deadlines.
One of the biggest pitfalls during the probate process is procrastinating or ignoring critical deadlines. If an estate is administered and beneficiaries are notified within the required timeframes, heirs and fiduciaries may take advantage of necessary rights and responsibilities. This failure can cause significant delays and ultimately lead to additional costs for the estate.
Pitfall #2: Not keeping the beneficiaries/heirs in the loop.
An executor’s biggest mistake is not keeping the beneficiaries/heirs informed about what is going on with the estate. This mistake can lead to misunderstandings and hard feelings, especially if probate takes a long time.
The beneficiaries and heirs are entitled to receive information about the estate and its progress. If you are the executor, you must keep them up to date. Otherwise, you may find yourself in hot water when it’s all over.
Pitfall #4: Distributing assets prematurely.
If you distribute your estate assets before you die, your heirs or beneficiaries may become personally liable for them.
Pitfall #5: Trying to DIY a living trust.
Without the help of a professional, it can be easy to make mistakes that can have severe consequences down the road.
- Need to keep up with asset transfers. This failure includes remembering to change the beneficiary on a life insurance policy or retirement account.
- Need to stay current on taxes. This failure can be a massive issue if you are named as executor or trustee of an estate. You could be held liable for any unpaid taxes.
- Need to follow the terms of the trust agreement. This failure can lead to litigation and other problems down the road. Make sure you understand what you agree to before signing anything.
- Failing to communicate with beneficiaries. When a loved one dies, the last thing grieving family members want to deal with is the hassle and headache of estate administration. However, avoiding professional help can be a costly mistake.
Which type of trustee is right for you?
When choosing a trustee for your trust, it’s essential to consider what type of fiduciary relationship you want. For example, do you want a corporate trustee or an individual trustee? Each has its advantages and disadvantages. Usually, children or family members can handle the trust administration without much difficulty especially if guidance of an estate professional is available.
A corporate trustee is a bank or other financial institution that administers trusts. The main advantage of using a corporate trustee is that they have the experience and expertise to handle the complex financial matters involved in trust administration. The downside is that they can be more expensive than using an individual trustee, and you may have less control over managing your trust.
An individual trustee is someone you designate to administer your trust. The advantage of using a personal trustee is that you have more control over managing your trust. The downside is that they may not have the same experience or expertise as a corporate trustee, and more costs may be associated with administering the trust.
For more information on your estate planning strategy and a Free Consultation, please contact Mark Fishbein by clicking the button below or by calling (520) 797-1400.
Mark Fishbein, ALTA Estate Planning in Tucson AZ
Feel free to call ALTA Estate Services, LLC office at (520) 797-1400 to learn more about Asset Protection Planning in Arizona, proper and complete estate planning, including the Emergency Telephone Hotline Program afforded to you and your family members at no charge during times of crisis and the other benefits of estate planning described above. Mark Fishbein, Tucson, AZ.
The text above is for general informational purposes only and should not be considered legal advice.
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