Many people use revocable or living trusts in their estate plans.

Living trusts are very powerful planning tools you can use for all kinds of purposes. Trusts can avoid probate, protect your beneficiaries from their creditors or divorcing spouses and can provide for the family cottage, education for grandchildren or your favorite charities.

Many of these trusts are signed and then put away in a drawer or safety deposit box, not to be looked at again for years. This can result in an estate plan that does not work as intended.

Trusts, like any other tool in your shed, must be kept sharp. When a trust is part of your overall comprehensive estate plan, you should try to avoid the seven most common trust mistakes:

Mistake 1: Failing to title assets in the name of your trust

Mistake 2: Failing to update your trust

Mistake 3: Using form documents

Mistake 4: Choosing the wrong trustee

Mistake 5: Thinking your trust protects you from your creditors

Mistake 6: Thinking that assets in a revocable living trust escape estate taxes

Mistake 7: Forgetting your favorite charities.

If you have not put your assets into your trust, also called "funding" your trust, you have lost some of the benefits of your trust.

Any assets that are in your own name at the time of your death will need to be probated. However, any assets that are titled in the name of your trust at the time of your death will avoid probate and usually result in lower after death administration costs.

Generally, except for qualified retirement funds and certain annuities, all of your assets should be transferred into your trust during your lifetime.

A trust drafted as a qualified beneficiary for retirement funds and named as beneficiary of your qualified retirement assets preserves the "stretch out" of the distributions over the ultimate beneficiary's life expectancy.

Placing all of your assets in your trust means that all assets will be distributed according to the detailed instructions you leave in your trust. Having a trust without putting your assets into the trust is like buying a brand new car, but not filling it with gas: It looks great, but it does not go anywhere.

Your trust should be reviewed at least once a year to make sure it still meets your needs.

There are many changes that can trigger an update to your trust. There may be changes in your personal life such as births, deaths, mar riages or divorces. There may be financial changes in your life, such as job changes, retirement, the stock market going up or the stock market going down.

There also are tax and non-tax changes in the laws. Congress never fails to pass some sort of a tax act every year. There also are changes in your attorney's experience. The trusts I draft this year are better than the ones that I drafted in previous years as I learn and experience new things.

Many people attempt to draft their own trusts by using forms found on the Internet or in legal software packages. Many attorneys also will use forms-based documents. When preparing a trust, the old adage "You get what you pay for" is very often true.

The forms-based trusts usually treat everyone the same. For example, many form trusts have the provision that your successor trustees take over if you become disabled in the opinion of two physicians. Most of my clients would rather have their family making this decision instead of non-family members.

Most forms-based trusts are also only will substitutes which provide upon your death that your property is distributed outright to your beneficiaries. For many, outright distributions are not the best protection for your beneficiaries. Many trust makers provide lifetime trusts for their children.

With lifetime trusts, your children have control over and have access to the funds for their lifetimes for their needs, but there are two key protections.

Firstl the lifetime trust protects the assets you leave to your children from your children's creditors.

And second, as long as the trust assets are not commingled with your children's marital assets, the assets generally would be protected from being considered as marital assets in the event of a divorce property settlement.

Many people choose their oldest child as their successor trustee. This may not always be the wisest choice.

When choosing a trustee, make sure the person that you are choosing has the skill and talents to manage your assets. If a child has a substance abuse problem, has poor money management skills or is married to a predator, it may not be the wisest choice to name him or her as your trustee.

You also may want to name multiple co-trustees to manage your assets during your disability or after your death.

You also could name a professional trustee such as a bank or trust company to be a trustee or co-trustee during your lifetime or upon your disability or death. These professional trustees are in the business of managing assets for a reasonable fee.

If you are not leaving the assets directly to a child as a result of substance abuse problems, poor money management skills, creditor issues or otherwise, an independent professional trustee making distribution decisions is often times better for family harmony.

Most revocable living trusts are not creditor protection devices for the trust maker. Most living trusts are drafted so you have full authority to change, amend, alter or revoke the trust and you have full access to the assets in the trust. If you have full access to your trust assets, so do your creditors.

Similarly, assets included in your revocable living trust are available or countable resources for Medicaid purposes.

Properly drafted and funded trusts for both you and your spouse can, however, protect your trust assets from your spouse's creditors and vice versa. A trust can also protect the assets you leave to your children from their creditors.

Many people think if they put assets in a revocable living trust, those assets will escape estate taxes. Upon your death, any assets in a revocable living trust are considered your assets in your gross estate for estate tax purposes.

In 2008, you can leave up to $2 million estate tax-free to your beneficiaries. However, you and your spouse can double the amount of assets that can be distributed estate tax free to your beneficiaries from $2 million to $4 million by using properly drafted and funded separate revocable living trusts.

About 89% of Americans donate to charities during their lifetime. However, only about 3% of Americans provide for charities after they are gone.

If you give regularly to a church or other favorite charity during your lifetime, your donations expire with you. These organizations that have depended upon your donations during your lifetime will no longer have those donations after you are gone, unless you provide for them. You may want to consider a bequest to your favorite charities after you are gone.

SOURCE: TheTimesHerald.com in an article written by Matthew M. Wallace, an attorney and CPA with the law firm of Matthew M. Wallace, PC, in Port Huron, Michigan.

Explaining to you how we’re different requires an explanation of what the “traditional” experience with a lawyer is like. If you’ve worked with a lawyer to prepare estate planning documents for you in the past, this will sound familiar.

During the traditional experience, you’ll go in and meet with a lawyer who will oftentimes make things seem very complicated and confusing. You’ll have a good idea that the lawyer is smart and seems to know what she’s doing, so you’ll nod and answer questions, as if you understand everything. Because you want to do the right thing for your family, you’ll have the lawyer prepare documents for you and you’ll sign the documents, feeling relieved that you’ve got that taken care of.

You’ll take your fancy planning binder home, stick it on a shelf or in a drawer, mark estate planning off on your checklist as DONE and never think about it again.

You might remember your lawyer said something about moving your bank accounts into the trust. So you’ll go to the bank, forget what you were supposed to do, call your lawyer’s office, get a voicemail, have to leave the bank and wait for a call back, (which takes several hours at least and sometimes days) and by that time, you’ll have gotten busy with other things and never get around to moving that bank account.

A few weeks later, you’ll get a bill in the mail for $67.50 for 15 minutes of your lawyer’s time for answering a couple of questions. You’ll make a mental note – don’t call lawyer ever again.

Several years later, you’ll refinance your house or sell it and buy a new one and forget that you were supposed to let your lawyer know or make sure you kept the title in the name of the trust.

Your children will get older, making your guardianship choices outdated, but you don’t want to call your lawyer because you know you’ll get a bill in the mail two weeks later.

You’ll hear something about a change in the tax law, but you figure you’d surely get a letter in the mail from your lawyer if it was something that affected you, so you don’t worry about it. And, you’d have to dig through boxes to find your trust documents so you could remember your lawyer’s name and find her contact information. Who has time for that?

In the following series of posts, I will explain in more detail what it means to be and to work with a Personal Family Lawyer and how it differs from the experienc of being or working with a traditional estate planning attorney. In this post, I will briefly describe some of the key differences:

In the beginning, I was a traditional attorney. I have always enjoyed my work, but was disappointed when my clients walked out the door because I knew I probably would not hear from then again. I wanted to form a more meaningful long term relationship with my clients, but didn’t know how. Now traditional is a thing of the past. Now individuals and families think of me as their trusted advisor for life.

Hourly billing is replaced by flat fees agreed to in advance so there are no surprises. We have a system for ensuring your assets are owned properly. We have a responsive team so your calls are answered in 24 hours or less. We have a method of capturing your intangible legacy for future generations. We have a Kids Protection Plan so minor children won’t be put into Protective Custody if something happens to you. We have a membership Program that provides substantial tangible benefits for you AND your family.

SOURCE FOR PORTION OF POST: Fellow Personal Family Lawyer Linda Sherfey

The following is another article written by Personal Family Lawyer and founder of the Family Wealth Planning Institute, Alexis Martin Neely:

When your parents die, you are the one who will be responsible for taking care of everything they leave behind. My dad died a couple of years ago and even though my stepmom was still living, ensuring that his estate was administered properly was my responsibility. There are steps you can take today to make sure that it will be as easy for you as possible and that what you inherit will be as protected as possible. Avoid these three mistakes.

Mistake #1 – The Way Your Parents’ Assets are Titled Could Cost You Tens or even Hundreds of Thousands of Dollars. If your parents’ own their home and other assets in their own name and not in the name of a well-drafted living trust, you could have to deal with an expensive, time-consuming and frustrating court process called probate. Probate is totally and completely avoidable by ensuring that ALL of your parents’ assets are held in trust properly.

Mistake #2 – Failure to Have Powers of Attorney and Health Care Directives Could Leave Your Hands Tied. If one or both of your parents become incapacitated, you could be stuck without a way to access their bank accounts and critical information if they have not executed updated legal documents that not only protect them, but you as well.

Mistake #3 – Your Parents’ Living Trust Might Leave Your Inheritance at Risk. If your parents’ trust is drafted in the best way possible, you could receive your inheritance protected completely from lawsuits, divorce and estate taxes. But, if it’s drafted incorrectly, your inheritance could be at risk.

You can easily avoid all these mistakes today by having your parents’ estate reviewed by a Personal Family Lawyer who can take the necessary steps to prepare everything for a smooth administration. Invest a fraction of the time and energy today to avoid 10x the complication, stress and cost later. It’s one of the best and least expensive investments you can make for your peace of mind.

SOURCE: Personal Family Lawyer.com in an article written by Alexis Martin Neely

You also should be aware of the other procedures involved in estate settlement. Here is a quick review of some of them. Your attorney, as well as the organizations mentioned, can provide more details.

Transferring property

When thinking about transferring your property, what probably first comes to mind are large assets, such as stock, real estate and business interests. But you also need to consider more basic assets:

Safe deposit box contents. In most states, the bank seals the box as soon as it learns of the death and opens it only in the presence of the estate's personal representative.

Savings bonds. The surviving spouse can immediately cash in jointly owned E bonds. To cash in H and E bonds registered in the deceased's name but payable on death to the surviving spouse, they must be sent to the Federal Reserve.

Receiving benefits

The surviving spouse or other beneficiaries may be eligible for any of the following:

Social Security benefits. For the surviving spouse to qualify, the deceased must have been age 60 or older or their children must be under age 16. Disabled spouses can usually collect at an earlier age. Surviving children can also get benefits.

Employee benefits. The deceased may have insurance, back pay, unused vacation pay, and pension funds the surviving spouse or beneficiaries are entitled to. The employer will have the specifics.

Insurance they may not know about. Many organizations provide life insurance as part of their membership fee. They should be able to provide information.

SOURCE: Lisa Golshani

You have two basic choices for transferring your assets on your death: the will, which is the standard method, and the living trust, which is rapidly growing in popularity. If you die without either a will or a living trust, state law controls the disposition of your property. And settling your estate likely will be more troublesome — and more costly.

The primary difference between a will and a living trust is that assets placed in your living trust avoid probate at your death. Neither the will nor the living trust document, in and of itself, reduces estate taxes — though both can be drafted to do this. Whether a will or a living trust is better for you depends on many personal factors. Let's take a closer look at each vehicle.

Wills

If you choose just a will, your estate will have to go through probate. Probate is a court-supervised process to protect the rights of creditors and beneficiaries and to ensure the orderly and timely transfer of assets. The probate process has six steps:

1. Notification of interested parties. Most states require disclosure of the estate's approximate value as well as the names and addresses of interested parties. These include all beneficiaries named in the will, natural heirs and creditors.
2. Appointment of an executor. If you haven't named an executor, the court will appoint one to oversee the estate's liquidation and distribution.
3. Accumulation of assets. Essentially, all assets you owned or controlled at the time of your death need to be accounted for.
4. Payment of claims.x The type and length of notice required to establish a deadline for creditors to file their claims vary by state. If a creditor does not file its claim on time, the claim generally is barred.
5. Filing of tax returns. This includes final income and estate taxes.
6. Distribution of residuary estate. After the estate has paid debts and taxes, the executor can distribute the remaining assets to the beneficiaries and close the estate.

A will can be advantageous because it provides standardized procedures and court supervision. Also, the creditor claims limitation period is often shorter than for a living trust.

Living trusts

Because probate is time-consuming, potentially expensive and public, avoiding probate is a common estate planning goal. A living trust (also referred to as a revocable trust, declaration of trust or inter vivos trust) acts as a will substitute, providing instructions for the management of your assets on your death and, if funded, during your life. You will still also need to have a short will, often referred to as a "pour over" will.

How does a living trust work? You transfer assets into a trust for your own benefit during your lifetime. You can serve as trustee or select a professional trustee. You completely avoid probate only if all of your assets are in the living trust when you die, or your assets are held in a manner that allows them to pass automatically by operation of law (for example, a joint bank account). The pour over will can specify how assets you didn't transfer to your living trust during your life will be transferred at death.

Essentially, you retain the same control you had before you established the trust. Whether or not you serve as trustee, you retain the right to revoke the trust and appoint and remove trustees. If you name a professional trustee to manage trust assets, you can require the trustee to consult with you before buying or selling assets. The trust does not need to file an income tax return until after you die. Instead, you pay the tax on any income the trust earns as if you had never created the trust.

A living trust offers additional benefits. First, unlike probate, your assets are not exposed to public record. Besides keeping your affairs private, this makes it more difficult for anyone to challenge the disposition of your estate. Second, a living trust can serve as a vehicle for managing your financial assets if you become mentally incapacitated or disabled. A properly drawn living trust avoids embarrassing guardianship proceedings and related costs, and it offers greater protection and control than a durable power of attorney because the trustee can manage trust assets for your benefit.

Who should draw up your will or living trust?

A lawyer! Don't try to do it yourself. Estate law is much too complicated. You should seek competent legal advice before finalizing your estate plan. While you may want to use your financial advisor to formulate your estate plan, wills and trusts are legal documents. Only an attorney who specializes in estate matters should draft them.

Selecting an executor or trustee

Whether you choose a will or a living trust, you also need to select someone to administer the disposition of your estate — an executor or personal representative and, if you have a living trust, a trustee. An individual, such as a family member, a friend or a professional advisor, or an institution, such as a bank or trust company, can serve in these capacities. (See Planning Tip 3.) Many people name both an individual and an institution to leverage their collective expertise.

What does the executor or personal representative do? He or she serves after your death and has several major responsibilities, including:

• Administering your estate and distributing the assets to your beneficiaries,
• Making certain tax decisions,
• Paying any estate debts or expenses,
• Ensuring all life insurance and retirement plan benefits are received, and
• Filing the necessary tax returns and paying the appropriate federal and state taxes.

Whatever your choice, make sure the executor, personal representative or trustee is willing to serve. Also consider paying a reasonable fee for the services. The job isn't easy, and not everyone will want or accept the responsibility. Provide for an alternate in case your first choice is unable or unwilling to perform. Naming a spouse, child or other relative to act as executor is common, and he or she certainly can hire any professional assistance needed.

Finally, make sure the executor, personal representative or trustee doesn't have a conflict of interest. For example, think twice about choosing an individual who owns part of your business, a second spouse or children from a prior marriage. A co-owner's personal goals regarding the business may differ from those of your family, and the desires of a stepparent and stepchildren may conflict.

Selecting a guardian for your children

If you have minor children, perhaps the most important element of your estate plan doesn't involve your assets. Rather, it involves who will be your children's guardian. Of course, the well-being of your children is your priority, but there are some financial issues to consider:

• Will the guardian be capable of managing your children's assets?
• Will the guardian be financially strong? If not, consider compensation.
• Will the guardian's home accommodate your children?
• How will the guardian determine your children's living costs?

If you prefer, you can name separate guardians for your child and his or her assets. Taking the time to name a guardian or guardians now ensures your children will be cared for as you wish if you die while they are still minors.

SOURCE: Lisa Golshani

Because estate planning is not just about reducing taxes but also about making sure your assets are distributed as you wish both now and after you're gone, you need to consider three questions before you begin your estate planning.

1. Who should inherit your assets?

If you are married, before you can decide who should inherit your assets, you must consider marital rights. States have different laws designed to protect surviving spouses. If you die without a will or living trust, state law will dictate how much passes to your spouse. Even with a will or living trust, if you provide less for your spouse than state law deems appropriate, the law will allow the survivor to elect to receive the greater amount.

Once you've considered your spouse's rights, ask yourself these questions:

• Should your children share equally in your estate?
• Do you wish to include grandchildren or others as beneficiaries?
• Would you like to leave any assets to charity?

2. Which assets should they inherit?

You may want to consider special questions when transferring certain types of assets. For example:

• If you own a business, should the stock pass only to your children who are active in the business? Should you compensate the others with assets of comparable value?
• If you own rental properties, should all beneficiaries inherit them? Do they all have the ability to manage property? What are the cash needs of each beneficiary?

3. When and how should they inherit the assets?

To determine when and how your beneficiaries should inherit your assets, you need to focus on three factors:

• The potential age and maturity of the beneficiaries,
• The financial needs of you and your spouse during your lifetimes, and
• The tax implications.

Outright bequests offer simplicity, flexibility and some tax advantages, but you have no control over what the recipient does with the assets once they are transferred. Trusts can be useful when the beneficiaries are young or immature, when your estate is large, and for tax planning reasons. They also can provide the professional asset management capabilities an individual beneficiary lacks.

SOURCE: Lisa Golshani