Trusts are one of the most important Estate Planning tools. They’re not only for the very wealthy, as we’ve discussed in past visits. When everything isn’t done right and kept up-to-date, however, a trust can cause more problems than it overcomes, especially for heirs.
Financial advisors are spending a lot of time resolving problems with trusts and other documents that are tying up assets, according to Financial Advisor magazine. The estate planning mistakes and snafus can cost a lot of time and money in legal and other professional fees. Plus, the property might be unmanaged for a while.
Trusts are supposed to make asset transfers easy and seamless. The assets in a trust avoid probate and other legal proceedings. When the original trustee passes away, the successor trustee named in the trust agreement takes over. When the original beneficiaries pass away or reach certain ages, the contingent beneficiaries begin receiving the benefits or the property is distributed.
Even with proper estate planning, it isn’t always so smooth. The firm with custody of the trust assets doesn’t want to mistakenly allow the wrong person to control or receive the trust assets only to be sued a few years later after the assets are gone. They’re very careful about accepting a new trustee or beneficiary. They also have to follow procedures prescribed by state law and probably several regulatory agencies. The full trust documents and any other relevant legal documents (such as a death certificate) must be submitted and reviewed. They’re often reviewed by both the legal and administrative or operations specialists. Until everyone signs off, the assets are frozen.
Even after everything is in order, the process can take a while. Things can get really stalled if there’s a mistake. Even a simple mis-spelling of a name or transposed numbers in a Social Security number can be a problem.
There are steps the creator of a trust can take to reduce or eliminate these problems.
- Review your trust documents carefully and regularly for any mistakes or dated information. Read and double check carefully, making sure spellings, dates, addresses, and other identifying information are correct.
- Work with the asset custodian now. Be sure they have copies of the trust document and ask them what they’d need to verify a successor trustee or beneficiary. When people at the firm know you and the trust already, a transition is likely to be smoother.
- Select a money manager or financial advisor now. When you have a professional working with the asset custodian, transitions and changes can be smoother and mistakes can be easier to correct. It’s a mistake to control everything yourself now and then leave your executor to step in cold and try to make a smooth transition. Establishing a relationship now also lets you test drive the customer service and other qualities of the advisor or money manager.
RW February 2012.