A “Living Trust,” also known as a “Revocable Living Trust” or simply a “Revocable Trust,” is a legal document that allows an individual, known as the grantor or settlor, to place their assets, such as property, investments, and bank accounts, into a trust during their lifetime. The grantor retains control over the trust and can make changes or revoke it as needed while they are alive. While a living trust is an effective estate planning tool, it’s essential to navigate the process correctly to ensure your assets are properly protected and managed.
Common Mistakes Made with a Living Trust
1. Failure to Notify Tenants of Ownership Change
If you’re transferring a rental property into a trust, it’s crucial to inform your tenants about the change in ownership for rent payment purposes. Additionally, you’ll need to set up a trust-specific bank account for rent deposits.
2. Neglecting to Inform the Insurance Company
Notify your home insurance company about the change in property ownership from an individual to a trust. Failing to do so could result in your insurance claim being denied, as the actual property owner may not be properly insured.
3. Not Notifying the Mortgage Holder
Check if your mortgage includes a “due on transfer” clause, which might require you to pay off the mortgage balance when transferring the home to a trust. Obtaining the bank’s consent before the transfer can help you avoid this situation. Keep in mind that securing additional loans against the home after it’s placed in a trust may become more challenging.
Benefits of a Living Trust You May Not Have Considered
While avoiding common mistakes is essential, a living trust also offers several benefits you might not have considered:
1. Ease of Transfer to Same-Sex Partners
Because a trust is a contract, it generally won’t go through the probate process—part of which includes notifying your relatives after your death. Even if some relatives don’t approve of the decedent’s sexual orientation and want to stop the transfer of property to their life partner, when the decedent’s assets are in trust, they won’t be probated. As a result, relatives won’t be contacted. It lets the settlor’s life partner receive the assets without interference from the decedent’s relatives.
2. Simplified Asset Titling
If you’ve informally changed your given name (but not legally), a trust can make it easier to retitle your assets in your new name.
3. Protection for Special Needs Individuals
If you have a family member with special needs or who is receiving government services/benefits, such as SSI or disability, leaving your home to him or her outright can cause issues with continuing these services and funds. You can protect and preserve those benefits and still leave an inheritance by placing your home into a Special Needs Trust.
Don’t let common mistakes undermine the effectiveness of your living trust. Seek professional guidance to ensure your estate planning needs are met.
For expert assistance in creating and managing your living trust, contact Ozarks Legacy Law today. Our experienced team will guide you through the process, tailoring your trust to meet your unique needs. Your peace of mind starts with us.