The creation of a trust is a big lift and an increasingly important step toward arming our loved ones with a solid estate plan. Attorneys remind us that once a trust and estate plan are in place, periodic review is important. Life’s changes—both happy and sad—are likely signals that estate plans need updating.
The estate planning experts at Frank & Kraft suggest that trusts should generally be reviewed every 3-5 years as a matter of routine. Life changes, including marriage and , divorce are examples of junctures when it is especially important to review the terms of a trust. Frank & Kraft offer these examples of how failure to update estate plans can wreak havoc in families:
When you marry, you will likely want to include your new spouse in your overall estate plan. That may include changing the beneficiary designations as well as changing fiduciary positions within your plan. Specifically, you may decide to add your new spouse as a beneficiary to an existing trust agreement and/or appoint your spouse as the Trustee of a trust. The marriage of an adult child is also something that could trigger a review because your son/daughter-in-law now has a potential legal interest in any assets that are to be distributed to your child according to the terms of the trust….One of the most common mistakes people make is forgetting to make changes to their estate plans after a divorce. Failing to update your plan after your divorce could leave your ex-spouse in charge of administering a trust and/or as the beneficiary of a trust.
Trust agreements likely also need to be updated to correspond with both the joy of a birth in the family and the sadness of a death. Experts point out that it is best to specifically add the names of newborns into a trust agreement “even if you already have a general provision directing distributions to “children” or “grandchildren.” Additionally, estate lawyers point out that when children become adults, some of the provisions in the trust may need to be reviewed if the intention is “to gift directly to them.”
Another aspect of a trust that is important to periodically reassess is the availability of the designated fiduciary, referred to as the trustee, to administer it. A friend or relation who said yes years ago may now be coping with a busier job, relocation, or an illness which could get in the way of carrying out trustee duties. It’s best to take the time to ensure the appointed trustee is clear on the trust agreement and knows how to access related documents, accounts and contact information. As a fiduciary, the trustee has an obligation to faithfully carry out the terms of the trust agreement. Given this responsibility, it’s common for the trust agreement to require a trustee bond. As a leading national provider of all types of fiduciary bonds, Colonial Surety makes it easy and efficient to obtain a trustee bond. Just get a quote online, fill out the information, and enter a payment method. Print or e-file the bond from anywhere—even the law office.
Life’s Twists and Turns
Of course there is no guarantee that the assets placed in a trust remain the same—value might shift for better or worse. Then too, there can be changes in laws, relocations and declines in our own health. All of these are reason to review the trust agreement and adjust it as needed to keep up with the twists and turns of life. Frank & Kraft share these additional considerations:
If you have not yet considered the addition of a Medicaid planning component to your estate plan, now is the time to do so. As part of that plan, you may need to add a Medicaid trust to your estate plan….Many clients include a revocable trust as part of their overall incapacity planning component within their estate plan. If you are diagnosed with a serious illness, however, you should review that trust to make sure everything remains applicable and current….Sometimes, changes in the law impact a trust agreement. For example, not all states recognize all types of asset protection trusts….Most aspects of trust administration are governed by state law within the United States. If you move to a new state (and certainly if you move outside of the country) you should review an existing trust agreement to make sure it complies with the applicable laws.
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