When Should You Update Your Trust?

By diamondcpas Best Practices, Estate Planning, Estate Planning, Money, Personal Finance, Personal Finance, Personal Taxes, Succession Comments Off on When Should You Update Your Trust?

How often do you find yourself saying,” I can’t believe we are already halfway through the year”? Time moves fast and it can be challenging to manage all the parts of our life. Birthdays sneak up on us, milestones come and go, and before you know it – it’s a new year!

 

While much of the year may move quicker than we like, we occasionally have deadlines and reminders to keep us accountable. Whether tax returns or compiling your year-end financial reports, they can help create structure around when we should have tasks done.

 

The same cannot be said for all of our responsibilities. If, for example, you have already established a trust, you don’t need to update it on a monthly or annual basis. However, that does not mean they never need reevaluating. 

 

There are many life events and milestones that should prompt you to reconsider your trust. 

 

In the following article, we will talk about some of those scenarios and when it is the appropriate time to update your trust.

 

A Change in Your Marital Status

This will include marriage, divorce, and the death of your spouse. In any of the listed scenarios, you may want to reconsider many of the terms listed within your trust. Remember, the implications of a trust reach beyond the distribution of your inheritance.

 

Your trust may also include details regarding who will be making decisions on your medical treatment should you be unable to make them for yourself. If your spouse is your beneficiary and they predecease you, you will want to ensure information is updated with another person you trust to act on your behalf. 

 

Birth or Adoption of a Child

If you add a child to your family, you may want to change the terms trust to ensure your child receives any inheritance or assets you leave behind.

 

Additionally, you may want to include detailed information surrounding the care of your child should something happen to you. If you are a single parent or if something were to happen to you and your spouse, having specific instructions regarding one or more guardians for your child is essential. 

 

Death of Beneficiary

If your beneficiary were to pass you leave the door open for the government to step in and decide how your inheritance should be divided. These situations can happen if your trust is not up to date. This is why the best way to ensure your wishes are met is to regularly update your trust. 

 

New Assets to Distribute

If you acquire assets subsequent to the formation of the trust that you do not wish to be distributed according to your will, you will want to consider updating the terms of the trust with those additional assets. For example, you may be fine passing a new vehicle on to the beneficiary of your other personal assets. But if it is a luxurious vintage vehicle you wish to pass on to someone specific, you will want to outline this specifically in the trust. 

 

Moved States

Moving from one state to another is a big undertaking and can affect a lot more than just your mailing address. When moving your state of residence, there could be implications as to how your trust is handled. Inheritance laws vary by state and depending on where you move, it could affect how your trust is executed. 

 

General Rule

Generally speaking, it is advised that you update your trust every 3 – 5 years. Not only do family situations change, but so does the tax law. If you actively participate in tax planning with your CPA, a review of your trusts is a critical part of forecasting your future tax liability. If you haven’t talked about your trust with your accountant recently, it is something you might want to consider.

 

Backups

In many of the scenarios listed above, trusts include backup trustees.  A backup will serve in the place of first trustee you designated in original trust formation documents. For example, if your spouse was unable to advise on medical care for yourself, a backup may be called upon. Backup trustees can help carry out the terms of the trust thus avoiding decisions being made by the court.  

 

Even with backups listed in your original trust formation documents, the best way to make sure your wishes are fulfilled is to make sure your trust is updated.

 

Unfortunately, it is all too common for families to fall into a disagreement when a loved one passes. While trusts can be very detailed with scenarios and backups listed, it is worth considering having the appropriate conversations with your beneficiaries. This way everyone is aware of their potential responsibilities and what they can expect to receive. 

 

Typically it is a good idea to meet with your accountant during major life events. If those do not happen too often, every few years it will be worth reviewing your documents for any information that needs to be updated.

 

If you are looking for someone to guide you through the process of updating your trust, consider contacting us by clicking the link here.

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