Don’t go through the time and expense of making an estate plan, then fail to follow it! It is an estate plan and, as they say, the best laid plans are only as good as their execution. Failure to follow the estate plan will almost always result in significant and unintended consequences when a death occurs.
The two easiest ways you can mess up your estate plan are 1) not keeping your assets properly titled to your trust, and 2) failing to coordinate your beneficiary designations (which was discussed in post #6 of this series).
Failing to properly title assets can occur in a variety of ways. You may have forgotten you owned a particular asset. You may have procrastinated in changing accounts over to the trust, then something happened (and it was too late!) or the task got lost in the shuffle. You may have purchased additional property and failed to title it to your trust. You may have put one of your children on an account with you, or promised someone something that is not set forth in your plan.
Failure to follow your estate plan can result in needless probate proceedings, cost money you didn’t have to spend, and change the ultimate disposition of your assets. It may also necessitate court intervention if you become incapacitated.
Luckily, following the plan is usually not terribly difficult if you just remember two golden rules: 1) Include all intended gifts / bequests in your estate plan – do not make side deals, promises, joint accounts or take any other steps that were not planned out; and 2) Pay particular attention when you are buying or changing assets — this is where most mistakes are made.
For example, if you have a trust and your house is titled to the trust (as it should be), but then you refinance the house, watch out! Most lenders will not make loans while the house is in trust. Instead, into that enormous pile of documents you sign at close of escrow, the lender includes a deed transferring title to your house out of your trust.
The pile also includes a “deed of trust,” which some folks think means a deed putting the house back into the trust, but that is not the case. A “deed of trust” is the document that creates a lien against your property to secure the loan. It does not change title. The only way to get the house back into your trust is to sign another deed. The lender won’t tell you that and the deed will not be included among the escrow documents.
If you die before the house is put back in your trust, a probate may be required. If you become incapacitated and you do not have a power of attorney for finances, a court proceeding may be necessary to sell the property or get it transferred back to your trust. The same result may occur if you sell the property, then deposit the proceeds to an account outside of your trust.