On average 4 out of 5 couples who walk through my doors with a request to review their existing trust do not know what type of trust they have. This is especially alarming because the type of trust that you have determines your rights when a spouse has passed away.
As previously discussed, there are numerous type of trust. Each couple’s estate plan is unique for their wishes, asset types, net worth, and so much more.
Just like there are different models of cars you can choose to drive when you decide to purchase a car, there are variations of trust. Each trust accomplishing different wishes and containing certain restrictions.
You would not drive a car that you don’t know the make and model of, so why would you have a trust that you don’t understand?
Example: Know Your Trust Type
John and Sally are a married couple, they have a trust but don’t know exactly what type of trust is. They don’t understand exactly how it functions. An attorney created it for them, but never fully explained how it works when one of the spouses passes away. The conversation with their previous attorney focused only on their children and what happens when both of them have passed away.
After One Spouse Has Passed
After John passes away, Sally goes to see an attorney. She finds out that the trust they have in place requires all of their joint assets to be split and divided into two separate trusts. The only asset they have is their family home so this confuses Sally. According to the trust, Sally has to divide all of the assets in half including the home; one half of the home in one trust and the other half in the other trust. Then she learns that she only has control over her half of the trust. The lack of control over John’s half creates a problem when Sally wants to make changes to the beneficiaries. John’s trust has to be distributed according to what Sally and John agreed on 12 years ago. Sally is stuck filing a separate tax return for John’s trust, which is an unnecessary administrative expense and burden.
The type of trust is extremely important when we’re discussing the rights that spouses have after the first person passes away. A lot of times estate planning meetings tend to focus entirely on distribution when both spouses have passed away. We must not forget to discuss what happens when only one of the spouses passes away. It is also important to discuss what rights and limitations the surviving spouse has. Knowing how your trust functions is an extremely important component to the estate plan.
If you have a trust in place whose type you are unsure of, feel free to contact my office. I would be happy to review your documents and let you know exactly how it functions. Please contact us at (818) 649-9110 to schedule a free consultation.
