When to Review Your Living Trust

by Neal Frankle, CFP ®

If you’ve already created your living trust, that’s fantastic.  You should be congratulated for taking steps to protect all you’ve worked for and for safeguarding your family.  Nice job Pilgrim.  But your job’s not over.

You’ve got to review your trust from time to time and update it as your financial life changes, your family’s situation evolves and as laws change.  If you fail to do so, all your work will have been for nothing.  But how often should you update the trust?  Glad you asked:

Neal’s Notes:  One word of caution.  A living trust is a great document that protects you in many ways.  But it is not a silver bullet for all problems.  Namely, if you are thinking about creating a living trust to protect your assets against a creditor lawsuit – it’s time to think again.  The trust won’t offer very much of that kind of protection.

1. Kids or Grandkids

If you (or your children) bring more children into the world it’s time to review your trust. And even if your family doesn’t expand, your children and grandchildren get older. And as the kids come of age you get to know them better. As a result, you might want to change the distributions as called for in the trust.

Let’s say one of your kids just sold her internet start-up and now has more money than the U.S. mint. She (and her children) may no longer need to inherit money from your trust. Better update the document…right?  Yep.

And let’s go the other way.  Let’s assume that one of your children is dealing with some challenges.  Sometimes putting more money in the hands of our loved ones only allows them to continue self-destructive behaviors. When you are clear on that, you might do yourself and your children a huge favor by restricting their access to your trust assets. In this case, you might want to consider an irrevocable trust instead.

2. Health

While most living trusts make allowances for your disability, it’s just a good idea to consider updating your trust if one of the trustees has become seriously (and possibly irreparably) ill.

3. Real Estate

When you buy or sell property, you don’t necessarily have to update your trust. Just make sure you hold title properly. Every now and then I see clients obtain new property and forget to put it in the name of the trust. Please don’t make this mistake.  That opens up the real problem of having to go through probate even though you have a trust.

And that goes for refinancing too. When you refinance your loan, the lender usually wants you to do so outside of the trust. (At least that’s how it works in California.) Just remember to put the house back into the name of the trust once your refinance is complete.

4. Timereview your trust

I recommend that people review their living trust every three to five years even if they think nothing has changed. The reason? Laws change all the time. One aspect of law that changes all the time is related to the health power of attorney.

I met a client who carried his health power of attorney documents around with him everywhere he went. I was really impressed by this client. But then I learned that his health power of attorney was created back in 1999.

Having a document that old was possibly worse than not having a health power of attorney at all. I say that because the document my client had was not in compliance with current law and it also conflicted with his current wishes.

In summary, if you care about your finances please stay current. There are lots of triggers that should get you in to see your attorney. Do yourself a favor and call your lawyer every three to five years to see if you need to update your trust. You may also want to redo your trust entirely. I always recommend seeing an attorney.  But if you are considering doing it yourself, read my review of Legal Zoom first please.


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{ 2 comments… read them below or add one }

Barb Friedberg July 18, 2010 at 12:36 PM

Hi Neal, OK, one more thing to worry about:). Our estate plan is pushing that 5+ year mark. I know you are right!!! Thanks for the reminder (even if I’m not taking it too well!) Regards, Barb


Tom @ Canadian Finance Blog July 16, 2010 at 4:27 AM

Thanks for the mention Neal!


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