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Hastily created, administered trusts can create legal problems

After taking the time to sit down with an attorney to create an estate plan, a person may feel a sense of relief. Taking this step means that his or her loved ones probably won't have to squabble over assets and property or wonder how the testator would have wanted the assets to be distributed. Although this is an important step, estate plans may need to be updated occasionally, because a person's assets might shift and laws are subject to change.

Last year, in fact, the federal government changed estate tax rules. Under the new law, a person is able to pass assets worth $5.25 million or less to loved ones without facing a tax liability.

Because of the changes to the law, some people may have decided to take another look at their estate plan and make adjustments for their beneficiaries' best interests. For example, with the change in law, certain kinds of trusts may no longer be the best option to administer assets with the goal of limiting the tax burden.

In the case of one couple, they realized that their beneficiaries would be best served by removing assets from their originally established trust and putting them in a different type of trust, governed by different rules. Under the terms of the new trust, the person who created it has the ability to select specific beneficiaries, as opposed to leaving those designations to a surviving spouse.

Trust law is immensely complicated, which is why it's often difficult for people to create an estate plan without the assistance of a knowledgeable attorney. Despite the quirks and intricacies of trust administration, it is possible to create a plan that reflects a person's wishes and doesn't create significant headaches for beneficiaries.

Source: The Wall Street Journal, "Unwinding Estate Tax Trusts Gets Tricky," Arden Dale, Sept. 20, 2013

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