10 Estate Planning Mistakes to Avoid
Mistake Number 7 – Failing to Fund Your Revocable Living Trust (Michael Jackson)
Revocable living trusts often form the cornerstone of an estate plan. These trusts are essentially private contracts that control the disposition of an estate. The benefit of creating a revocable living trust and funding the trust (i.e. transferring assets to the trustee) during your lifetime is that the assets held in trust will pass to the intended beneficiary outside of probate.
In many instances, it may be desirable to leave a revocable living trust unfunded, and to have the trust funded only at death. The decision to fund (or not fund) a revocable trust should be made carefully as the wrong decision can have disastrous consequences.
Michael Jackson created a revocable living trust as part of the famed pop star’s estate plan. The purpose of the trust was to funnel his estimated $500 million estate to his beneficiaries without much publicity or court oversight.
The problem was that Michael Jackson’s trust was unfunded at his death in 2009. This meant that his entire estate was forced into probate under the supervision of the courts and constant media attention. Jackson’s executors had to go to court for permission to manage various aspects of the estate. Jackson’s beneficiaries also sought court intervention in the form of an allowance (estimated at $8 million dollars a year) as the probate process unfolded. Creditors and various legal issues slowed the probate process and the lack of a properly funded trust likely added to the expense, emotional aggravation, and delay in managing the estate.
How long has it been since you reviewed your estate plan with an attorney?