Estate Planning Mistakes



The first mistake with the use of trusts is not using the right type of trust. There are many different types of trusts. By far the most common type of trust is a Revocable Living Trust, often called a “RLT.” A RLT is a great solution for most situations. It can provide for management of your assets during incapacity, avoids probate at death, etc. But, it may not be the right solution for every situation. For example, if someone is looking to qualify for Medicaid in the future, the assets in a RLT will be considered available resources, just as if those assets were owned outright. A special irrevocable trust could be used if one wished to qualify for Medicaid. Such a Medicaid trust could limit the transferor’s rights in the assets to income only, or the transferor might not be a beneficiary of the Medicaid trust at all. While a Medicaid trust is not the right solution for everyone, it can remove the assets from consideration for Medicaid and allow the transferor to qualify for Medicaid, if the transfer is made far enough in advance of the Medicaid application. Whether you are the attorney or the client, consider what type of trust is appropriate. Each type of trust has its strength. The key is choosing the right type of trust for the situation.


The second mistake with the use of trusts is not funding the trust properly. A RLT is a great tool, but only if it is funded. If a RLT is unfunded, the RLT may just be a worthless piece of paper. If there is a Pour-Over Will, which transfers the assets to the RLT upon death, the assets would be subject to probate and only then would be distributed according to the terms of the RLT. But, if there is no Will, the unfunded assets would pass pursuant to the one-size-fits-all system enacted by the legislature of the state of residence, the system known as “intestacy.” An RLT should be funded appropriately to maximize its usefulness during incapacity (to avoid needing a conservatorship) and death (to avoid a probate).


reprinted from Academy Estate Planning Attorneys September 2017

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North Miami Beach, Florida