When crafting your estate plans, a trust can be a powerful tool to protect your assets, provide for loved ones and avoid the hassles of probate. However, it’s critical to create the trust correctly. Small mistakes can lead to big problems, potentially derailing your carefully made plans.
Setting up a trust requires careful planning and attention to detail. Avoiding these pitfalls can help you protect your estate and secure your legacy while ensuring your final wishes are carried out smoothly.
1. Choosing the wrong kind of trust
Not all trusts work the same way, and picking the wrong one can have undesirable consequences. For example, a revocable trust lets you maintain control of your assets during your lifetime, while an irrevocable trust generally does not. If you need flexibility but choose an irrevocable trust, you could lose access to your own property.
Similarly, if you’re providing for a loved one with special needs, a standard trust could jeopardize their eligibility for government benefits. In such cases, a special needs trust is the best option. Understanding the differences among trusts ensures you make an informed decision.
2. Failing to fund the trust
Creating a trust is just the first step. You also need to fund it. This means moving assets like real estate, bank accounts and investments into the trust. If you don’t, you will have an empty shell of a trust, and assets not included in it may go through probate, which defeats the whole purpose of the trust.
3. Choosing the wrong trustee
Your trustee is essentially in charge of the trust and its assets. Choosing the wrong person to take charge can lead to mismanagement or unnecessary disputes. Appoint someone responsible and trustworthy, and look beyond family if necessary.
4. Not updating the trust
Life changes, and you should ensure the trust reflects that — whether it’s a marriage, divorce, births or deaths. Review your trust regularly, and make adjustments to ensure everything is up-to-date. If you don’t keep the terms of the trust current, it may not distribute assets as intended.
Most importantly, do not overlook legal guidance. You want to be sure that you have all the information you need at your fingertips, from tax implications to legal compliance. Getting everything right from the start can help save you and your loved ones a lot of headaches down the road and give you peace of mind.