Five Common Mistakes with Living Trusts
A properly prepared and funded living trust has many benefits, including avoiding court interference at death and incapacity. But people often make mistakes that prevent their trusts from working the way they intended. Here are five of the most common ones.
1) Not having a properly prepared document
Too many people try to save money by using online or do-it-yourself forms, or choosing an attorney with the lowest price. If the documents are not properly prepared, you have wasted your money. Your trust may not work the way you intended or, worse, you could be left with no valid plan at all. It’s best to go with a local, experienced estate planning attorney who will be able to provide you with well-written documents and valuable counsel. Finding the right attorney may take some time, but it will be well worth it in the end.
2) Not reading the trust document
How will you know if your plan is what you want if you don’t read it? If you are having trouble understanding certain parts of it, ask your attorney or paralegal to explain them to you.
3) Not funding the trust
Your living trust can only control the assets you put into it. You can have the best documents that contain all of your instructions, but until you fund it (by changing titles and beneficiary designations to the name of your trust) it doesn’t control anything.
All too often people don’t finish the funding process and some assets end up going through probate—and avoiding probate is one of the reasons they wanted a living trust in the first place. If you have a living trust, make sure it is fully funded so it can do its job.
4) Naming the wrong successor trustee(s)
Your properly prepared and funded living trust may not work the way you intended if your successor trustee does not follow the trust’s instructions and perform his/her duties as required. Many people name one or more of their adult children as successor trustee(s), but consider all of your candidates carefully.
Keep in mind the complexities of your trust and how long it will last (for example, to provide for a child with special needs), as well as the personalities and abilities of your candidates, where they live and how busy they are with their own affairs. We all have different gifts and abilities, and being older does not necessarily make one wiser.
You need to be more concerned about your trust working properly than about hurting a child’s feelings. A professional trustee may be your best option.
5) Not keeping the trust document current
Your trust is a reflection of your personal, family and financial situations at the time it was created. These things change over time, and your trust will need to change with them. Review your trust every year or so, and have it updated whenever needed.