What You Don't Know About a Living Trust Can be Costly

Living trusts are wonderful. When my Dad died the trust my parents had set up made life so easy for my Mom. She filed some paperwork and everything was done. She had access to money and their property almost immediately after Dad died.

However, as I recently found out a living trust can create problems and cost you money if you aren't careful. I have a friend whose Grandmother passed away a few months ago.

Her Grandfather had died a few years before leaving everything to his wife. Grandma and Grandpa owned a piece of property with my friend's father and mother ( Grandma and Grandpa were his parents). Her Dad had originally owned the house and when he bought a new home he gave his parents a half interest in the existing home. They owned the property as joint tenants with right of survivor ship. O. K... none of this is strange.

However about 15 years before Grandpa died; the son and his wife decided to set up a living trust for their property. What they didn't realize was that when they took title as a revocable living trust on their 1/2 interest the form of ownership changed from joint tenants to tenants in common. This might not have been a big deal except the son has a sister.

When Grandpa died the family didn't probate his estate. When Grandma died they needed to clear things up... and here's the problem. Grandpa passed his share of the property to Grandma.. when Grandma died her share ( tenants in common not joint tenants) didn't pass to the son but to her heirs, the son and daughter. Dad originally owned the house and gave his parents a half interest with the intent that the property would revert to him upon their death. Now he found out that wasn't going to happen. When he and his wife took title as a trust the joint tenancy was cancelled and the tenancy became a common tenancy which can be willed to others. Now Dad will receive 3/4 of the value of the home and his sister will receive 1/4 of a home that he really owned all the time.

It's a quirk of the law.. their intent wasn't to change the manner of holding title but that's what happened. So a word of caution.. if the property you are going to put in the trust is wholly owned by you and a spouse no problem. However if you own any property with someone other then a spouse be sure that by setting up a trust you don't jeopardize your interest in that property.