A living trust is a popular estate planning tool, but it's important to understand the common mistakes people make with them. At Crain & Wooley, we want to help you avoid these mistakes and ensure that your trust effectively protects your assets and provides for your loved ones. This blog post will outline the most common mistakes made with living trusts and how you can avoid them.
What Is a Living Trust?
Living trusts are legal documents that can be used to plan and distribute your assets to loved ones, just like wills. Living trusts become active the moment they are created, assigning trustees to manage certain assets -- like your house -- for the benefit of the beneficiaries. Revocable or irrevocable living trusts are available.
You can change the terms or control of assets in a revocable trust at any time. The upside to this flexibility is that your assets still count as part of your estate after death. In an irrevocable trust, your assets are no longer included in your estate, but you give up some control over the trust and its assets.
Mistakes to Avoid When Setting Up a Revocable Living Trust
Having a living trust does not mean everything is taken care of. Here are a few common mistakes people make with their living trusts.
Not Placing Your Home In The Trust And Not Coordinating Financial Assets With Your Trust
If you don't place your home in the trust, it won't be subject to the terms of the trust when you pass. That means your trustee will have no authority over it, and your loved ones will have to go through probate—a time-consuming and expensive process—to transfer ownership.
It is extremely important that you coordinate all other titled financial assets with your trust. For example, certificates of deposit (CDs) and checking accounts must be coordinated with your trust in order for your successor trustee(s) to have access without going to court. In general, tax-deferred accounts should stay outside of your trust but have your trust named as its beneficiary.
Naming The Wrong Successor Trustee
Since your successor trustee does NOT have to be a professional like a banker or a CPA, it is important to select the proper person(s). The successor trustee will have immediate access to your assets without the court oversight of the probate process. People often name one or more of their adult children successor trustees, but you should carefully consider all your candidates. Think about how long the trust will last (for example, to provide for a child with special needs), the personalities and abilities of the candidates, their location, and how busy they are with their own affairs.
Not Keeping The Trust Document Current.
Your trust reflects your personal, family, and financial circumstances when it was created. Over time, these things will change, and your trust will also need to change. Have your trust reviewed every year or so and update it as needed.
Not Speaking With an Estate Planning Attorney
Working with an experienced estate planning attorney is one of the best ways to avoid making mistakes with your living trust. An attorney specializing in estate planning can help you create a living trust that meets your unique needs and enables you to avoid common pitfalls.
Crain & Wooley Is Here For Your Estate Planning Needs
Estate planning is customized to the needs of individuals and families; not a one size fits all proposition. At Crain & Wooley, we take the time to learn about your unique family dynamics and financial situation. We then craft a comprehensive estate plan designed to protect your assets and provide for your loved ones as you intend. To learn more about how we can help you, contact us today.
Contact us today at (972) 560-6288 to schedule a consultation!