Living Trusts: How Often Should They Be Updated? - Werner Law Firm
How Often Should Living Trusts Be Updated? - Werner Law Firm

How Often Should Living Trusts Be Updated?

Revocable living trusts are renowned for being the better alternative to a last will and testament, because of a myriad of estate planning features, the greatest of which is the ability to skip past the probate process.

But just like a will must be updated to reflect life’s major changes and deal with unexpected events, your trust should be updated regularly. However, updating a trust can be time-consuming, and given the complicated nature of properly preparing and making legitimate trust amendments valid under your state’s specific laws, it’s best to know exactly when you absolutely need to update your trust.

In some circumstances, you might even have to consider radically redoing your trusts, scrapping and revoking the previous agreement in favor of a completely new document, alongside the hassle of funding everything into the new agreement, and transferring all your assets properly.

To avoid unnecessarily consuming your time and resources, here is a handy list of occasions when updating your trust is in your best interest.

When You Move

Moving from one state to another, or even more significantly, from one country to another, can massively affect living trusts and the provisions therein. Local state laws are always taken into consideration when drafting a trust, and you must consult with a local lawyer well-versed in state estate planning laws if you plan to change your domicile and make a move out of town.

In Marriage and Divorce

Marriage and divorce can have a very widespread effect on your estate planning and overall financial well-being, from adding onto your wealth through joint assets, to massively reducing it due to the lack of a prenuptial agreement.

No matter how much you love someone now, it’s impossible to see into the future and know exactly how your feelings towards them might change in years or decades to come, and vice versa. It is unwise to listen strictly to the heart in financial matters, especially when the inheritance of your children is on the line.

Aside from a prenuptial agreement, consult your estate planning professional or lawyer on what to do regarding your estate planning when you’re getting married, divorced, or widowed. In California, most everything you acquire after tying the knot is considered community property – meaning, you are a one-half owner to any house you buy together, investment you make together, and even the value of your individual salaries. Unless, of course, certain legal agreements are drafted and signed by both parties agreeing to keep property individual rather than joint. Living trusts, for example, can protect you.

Significant Investments

When Mark Zuckerberg came up for the idea of Facebook, and gradually evolved it from a social platform for college students to a multinational corporation, he became a wiser investor and a more financially-savvy individual. Part of what set him apart from other entrepreneurs his age was foresight – such as in his use of an estate planning tool to dodge the gift tax while ensuring that his current and future beneficiaries will receive millions of dollars should something happen to him.

This is what he did: he transferred his pre-IPO stock in his own company into a special trust just before Facebook went public. After going public and significantly increasing in value, the value of his trust went up accordingly – but because he transferred his assets into the trust while their value was still relatively low, he managed to stay well below his lifetime gift tax exemption.

Years later, he and his wife utilized smart estate planning to set up a charitable plan without creating a charitable foundation.  These are just a few among many tools used by the ultra-wealthy to keep their wealth intact. But you don’t have to be exorbitantly rich to make use of this tool. Rather than transferring your assets into a trust after they have appreciated considerably, consider moving them beforehand.

If you want to solidify your wealth, investing in stocks can be both risky but incredibly rewarding. The trick, however, is buying options before they become very valuable. A word to the wise: avoid borrowing to make investments. There are no guarantees in investing, and a bad call on a poorly-performing stock could turn into a major financial setback for you.

Adding or Changing Beneficiaries

Birth, death, adoption – there are several times when you may want to consider amending a trust to add or remove a name from your list of beneficiaries, and specify how their share of your estate is to be distributed.

For example, if your child is exhibiting certain behavior that may make them unfit to handle your estate, or if an illness or disability limits their capacity to responsibly utilize their inheritance, you can amend your trust to include provisions on how their inheritance should be delivered – a monthly sum, on an annual basis, or over time and then all at once when they reach a certain age, for example. Or, you can set up an estate plan to provide for your adult child after you’re gone, if they’re incapable of providing for themselves.

Making Amendments to Living Trusts

Living trusts can be amended, restated or revoked and rewritten, in order of severity. Amending a living trust is relatively straightforward, and does not require too much paperwork. You simply attach a document to your trust drafted, written and signed by you declaring an amendment to one or more provisions within the original trust agreement. Later, the executor of your trust will use the original trust agreement alongside any amendments you make have made to determine exactly how to execute your wishes.

Over time, this becomes more complicated, and distributing your estate among your beneficiaries becomes more difficult. Too many amendments can lead to a significant amount of clutter, making the executor’s job a lot harder, and potentially making your wishes unclear. If you have several amendments to make, and want to save on paperwork, then a restatement allows you to completely supersede all your trust’s provisions unless specifically noted without requiring you to transfer your assets or refund the trust.

Finally, the most radical but at times necessary change is the complete revoking and rewriting of a trust agreement. It’s typically a good idea to completely redo your trust if you feel that you have simply created too many amendments over the years, and if your financial advisors can ensure that transferring your assets into the new will won’t cost you a significant amount of your potential estate.

Whatever you do decide to do, make sure to consult a professional first, and seek the help of an estate planning expert before you make any rash changes to your current trust agreement or overall estate plan.

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