Keep Tabs on Your Living Trust

Refinancing your home? Don't forget to examine the implications on your living trust. One homeowner recently took advantage of low interest rates to refinance his home and reduce monthly payments. Unfortunately, he didn't realize that his lender required that the home be transferred back to the owners' individual names before processing the loan. If he hadn't caught the glitch, he could have been faced with probate later - a situation he was trying to avoid with the living trust in the first place.

Revocable living trusts, which allow heirs to avoid expensive and time-consuming probate court proceedings, have become increasingly popular in recent years. But unlike a will, a living trust cannot simply be signed and filed away. Any change in assets, finances or family members may require an update to the living trust or will.

Over the past few years, this problem has become more and more prevalent as interest rates have remained relatively low and homeowners across the country have refinanced their homes. After the new loan is processed and the new deed of trust is recorded, the homeowners are free to transfer the home back into the living trust, but lenders rarely assist with this final step (and some homeowners don't even know their home was removed from the trust, since they may have signed many documents at once).

The end result is probate. Sometimes it's possible to obtain court approval to confirm trust ownership of a home that was never formally transferred to the trust. However, it's unlikely that a court would confirm trust ownership if the last document signed was a deed transferring the property out of the trust.

The bottom line? If you have a living trust and you've refinanced your home in the past few years, review the documents to ensure that the home is currently held in the trust. If it isn't, consult with your estate planning adviser to prepare and record a new deed returning the property into the trust. If you own many properties, consider signing a new "Declaration of Trust" annually, confirming that all property is held by you as trustee of your revocable living trust, regardless of whether the formal title documents show otherwise.

Here are a few other situations when your living trust and will should be updated:

• ‍You get married. Generally, your spouse is legally entitled to half of the property you earn during your marriage, unless you have a written agreement indicating otherwise. You should update your living trust and will to indicate how you wish to distribute your half of the community property and all of your separate property.‍
• You get divorced. You should update your living trust and will after a divorce so your assets are distributed to your intended beneficiaries. And don't forget to check other documents for beneficiary designations, such as IRAs, life insurance, and 401K accounts.‍
• You acquire or dispose of assets such as real estate or stock. If you obtain new assets and you want to leave them to someone specific, or if you've sold or gifted certain assets, you may need to update your will and living trust to reflect this.‍
• You're single, but have a significant other. Without a will or living trust, your partner generally won't inherit any of your assets.‍
• You have a baby. You need to name a personal guardian and trustee in your legal documents - someone to raise the child and manage the money in the event something happens to you and your spouse. The guardian and trustee can be the same person or different people.‍
• You have new stepchildren and you want them to inherit assets. Blended families often require extra thought when it comes to legal documents, and unless you legally adopt your stepchildren, they have no right to your inheritance. If you want to leave them a share of your assets, you need to update your will and living trust to reflect your wishes.