Many people spend much of their lives saving for the future and attempting to build wealth. Once you have accumulated some assets, it’s important to have a plan for them.
This includes protecting the assets both when you’re alive and after you’re gone. It’s for this reason that often people choose to have a living trust document as part of their estate plan.
It helps to know you’re protecting your assets well beyond when you’re alive. But it’s also critical to create the document carefully. You want to avoid living trust writing mistakes so your trust stands the test of time.
What are some of the most common living trust mistakes? Read on to learn more, so you can avoid making these same errors when you set up your living trust.
What Is a Trust?
A living trust is a legal document that is set up by the trust creator to manage assets and make an easy transfer of those assets to a beneficiary.
You might wonder how a living trust is different from a will if the trust transfers assets to the beneficiary. Understanding the difference is key to understanding the purpose of a living trust.
A will is a document that tells what happens with the person’s affairs, including their assets after they’re deceased. A living trust, however, is in effect while the trust creator is still alive.
The living trust creates a fiduciary relationship with the trustee to manage the assets of the trust creator. Once the trust creator dies, the trustee has the responsibility of managing the trust following the directions given in the trust.
A will must go through probate, which can be time-consuming and expensive. A trust, however, does not have to go through the probate process.
What’s the Goal of Your Trust?
Writing a living trust means you are taking control of your assets and spelling out how you want them managed and even distributed into the future.
You want to have a clear idea of your goals for the trust and how you want the trust managed. Remember, a trust handles your monetary assets both while you’re alive and after you’re gone.
Mistakes to Avoid With Your Trust
Now that you have an understanding of the purpose of a trust, it’s easier to understand and even avoid the mistakes that sometimes happen when writing a trust.
Let’s take a closer look at some of the most common mistakes people make.
Often people will set up a living trust and act as the trustee for themselves while they’re alive.
It’s important, however, to also designate a trustee who can step in for you at any time. This trustee successor should be someone who you trust implicitly and someone who you’re confident will honor your wishes.
This role carries a great deal of responsibility. This person will be managing your financial assets at some point.
The common mistake people make is putting off naming this person, thinking they have plenty of time. You want your trustee to have a full understanding of the trust and your wishes related to it while you can still discuss it with them.
It might be a cliche, but life is full of twists and turns. Things in your life can change: divorce, children, grandchildren, death of a spouse, sale of a business – just to name a few.
It’s important that you get in the habit to revisit your trust. Does it need any updates based on life events?
Do the directions you have listed in your trust still remain clear and concise?
You also want to consider your listed beneficiaries. Has anything happened in your life that would require you to change those beneficiaries?
Underfunding the Trust
Remember, the purpose of a living trust is to manage assets, then to transfer them to beneficiaries upon your death.
You need to actually transfer your assets to the trust though. Any assets that you own that are not transferred to the trust are not under the purview of the trust.
Often this means transferring titles to the trust instead of keeping them in your individual name. If you have retirement accounts that can’t be transferred into the trust, you need to be sure the trust is named as the beneficiary of those assets.
Wrong Type of Trust
The world of estate planning has evolved as more people have needs from it. As a result of this, there are many different types of trusts.
For example, you can set up a trust specifically to protect the needs of a special needs child.
There is also a trust with language to protect your assets from a spouse who potentially might spend too much money too fast.
Make sure you talk to your estate planning specialist very specifically about your hopes for your trust. You want to make sure you actually have the best type of trust for your needs.
One problem trustees sometimes face is when they don’t get good direction from the trust creator.
It’s important that you have clear and concise directions about your intentions so the person you entrust to manage the living trust can follow them.
Thinking a Trust Covers It All
A living trust should be just one part of your overall estate planning. Remember, this covers your financial assets. You will still need a will.
You probably want to have a durable power of attorney so you have a designated person to make medical decisions for you if you can’t make them for yourself.
Avoid These Living Trust Writing Mistakes
Creating an estate plan with a living trust shows smart intentions for the future. Avoid making the most common living trust writing mistakes so your trust can be executed following your wishes precisely.
If you need help with your estate plan or living trust, we have the expertise you need. Contact us today to set up a time where we can discuss your estate planning needs for the future.