Your trust should be reviewed every few years to make sure that it is up-to-date, for any changes in the law or changes in your circumstances and goals. Here is a checklist of to think about. This applies only to revocable “living” trusts, not to irrevocable trusts.
- Do you name the right successor trustees? The trustee of your revocable trust generally is you, with your spouse as co-trustee (if you’re married). You also should have named one or more successors if the original trustee or trustees cannot serve. Do you still want the successors you originally named, and in the order you listed them?
- Should you have your successor trustee start serving sooner? If you’re having problems with memory or mobility, you may want to change your trust so that your successor trustee can start to serve with you now. That lets you see how your co-trustee acts and you still have the ability to change trustees if you decide it isn’t working out. Also, if you’re married and your spouse is a co-trustee on your trust but he or she has dementia, you might want to change the order of trustees so that a child serves as successor trustee even if your spouse survives you.
- Who can remove trustees besides you? You always can change the trustees of your revocable trust. But should your heirs also have this right after you pass away? This can help with family harmony or allow a change in bank trustees when there are communication problems or disagreements with the trustee. But sometimes it’s better to limit the power to replace trustees if you want to make sure the beneficiaries aren’t just looking for a trustee to do whatever they say. For example, you could give beneficiaries the power to change trustees, but only to a lawyer, CPA or trust company.
- How much flexibility should your spouse have to change ultimate distribution of trust assets after you have passed away? Often trusts give surviving spouses a “power of appointment” to redirect trust assets at their death. This helps provide flexibility to change the ultimate distribution if there are changes in family circumstances or the law. For example, if a child becomes disabled or estranged, it might make sense to change how the distribution to that child is made, or even disinherit that child altogether or skip that child and give his or her share to the grandchildren. This should be used with caution for second marriages. Depending on the language of the a power of appointment, the second wife could use this power to give everything to her children instead of to her deceased husband’s children (the original beneficiaries). Often powers of appointment are included, but limited as to the potential class of who can be named a recipient of the trust, even for first marriages.
- Does your trust protect your children and grandchildren from lawsuits and divorce? Rather than distributing your trust outright to your children, your trust could continue for your children’s lives to provide creditor and divorce protection. Maybe their circumstances have changed and this makes more sense than when you were first creating this trust.
- Have you properly funded your trust? Only assets that you’ve retitled into the revocable trust will avoid probate. Assets that are still titled in your personal name will pass through probate before being added to your revocable trust. It is good to review your asset listing and how accounts are titled with your attorney every few years, or if you transfer assets between banks or investment companies.
- Who is your beneficiary of retirement plans, life insurance and annuities? It’s a good idea to keep a list of your current beneficiary designations for IRA’s, 401(k)’s, annuities and life insurance. Depending on your situation, you may name individuals or the trust (or a subtrust) as beneficiary. You need to make sure that your beneficiary designations and your trust planning are coordinated. Also, be cautious of accounts set up as “payable on death” or “transfer on death.” That can thwart your good planning, by causing assets to pass to an underage beneficiary, or change your intended distribution scheme.
- When should your children and grandchildren receive their inheritance? Your trust probably states that assets will remain in trust for beneficiaries who are under a certain age, often 21 or 25. If you had an older age, that could be lowered if you now see that the beneficiary has proven very responsible. Alternatively, if you have concerns about the age being too young, or that you don’t want the beneficiary to get the entire inheritance at once, you could increase the age. You could also have a multi-stage distribution, to permit a beneficiary to withdraw a portion of the trust at set ages, such as half at 25 and half at 30, or a third each at 25, 30 and 35. Remember that the trustee could be able to make distributions before then, but the beneficiaries (your children or grandchildren) couldn’t get direct control themselves unless the trustee believes they have sufficient financial experience.
- Would you like to maximize tax deferral for your IRA’s? If your goal is to encourage your children or grandchildren to maximize your IRA’s tax deferral and protect them from creditor or divorce problems after your death, you may want to supplement your living trust with an IRA Beneficiary Trust that can stretch out the annual required distributions.
- Have you moved since your trust was drafted or last reviewed? Usually you do not need to make changes to your revocable trust if you move to North Carolina. However, it is a good idea to have your trust reviewed by a North Carolina elder law estate planning lawyer to confirm that. Even if your revocable trust is ok as-is, your other documents such as your will or powers of attorney may need changes.
- Can you simplify your trust now that estate tax laws have changed? Estate tax rules have changed so that they don’t affect nearly as many people. If your trust has an “A-B” trust, or a “credit shelter trust” it was written to save estate taxes. However, for 99% of the people who have estates of under $5,000,000 those estate tax measures are no longer needed and may even cause a result you don’t want.
Sometimes people get their estate planning notebook and simply put their trust documents on the shelf, never to be reviewed. Don’t let that be you! Using this checklist, you can review your trust to understand your trust and how it works. Then consult with your estate planning attorney to make sure of any changes that might be needed, or to answer questions that you have.