If I Have a Revocable Living Trust, Can I avoid Probate Entirely?
However, you need to be sure that your Trust is up-to-date with 1) the law and 2) your personal and family circumstances.
State and federal tax laws changes from time-to-time, so you need to be sure that your Estate Plan is appropriate for the law as it exists on your date of death. This means that, after your Estate Plan is prepared, you need to keep in touch with your Estate Planning attorney, who should be providing you with notice of any significant changes in the relevant tax laws.
For example, the American Tax Relief Act of 2012, which became effective in January 2013, dramatically increased the exemption for Estate Tax. As a result, many so-called "AB Trusts" became unnecessary. Moreover, if you don't need an AB Trust for personal reasons (e.g., different children from different marriages), you might be saddling your heirs with tens or even hundreds of thousands in capital gains taxes due to the loss of the "step-up in basis" on property inherited through the "B" or "Credit-Shelter" Trust.
Other problems arise from the failure to properly “fund" the Trust with real property or other assets. For example, assume that, three years after a married couple (the Grantors) fund their Trust by re-titling their principal residence in the name of the Trust, the Grantors decide to refinance their mortgage. In the course of doing so, the Grantors’ bank requires them to transfer the residence out of the Trust before the new loan is issued. The Grantors do so, then forget to transfer the property back into the Trust when the refinance is completed. Seven years later, the Grantors are both deceased.
Since the principal residence is no longer in the Trust, the Successor Trustee will have to file a “Heggstad Petition” with the Court to transfer the property back into the Trust before the Estate can be fully administered.
The surviving spouse must also be sure to follow the required procedures in administering the Trust after the death of the first spouse. In many cases, however, the surviving spouse fails to follow the proper procedures after the first spouse dies, particularly with respect to AB Trusts.
At our firm, we try to avoid all of these problems by 1) keeping in touch with our clients through regular quarterly emails and 2) reminding you to review you Estate Plan at least once every year.
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