The Four Biggest Trust Mistakes
Trusts can be wonderful estate planning tools used to address a myriad of issues. These four common mistakes, however, can cause a trust to create more problems than it solves.
Mistake #1: Choosing the Wrong Type of Trust
Trusts can be used for tax planning, Medicaid planning, estate planning, protecting vulnerable beneficiaries such as minor children, disabled individuals or even future unborn generations. No trust can do everything; however. It is important that your trust be carefully crafted to meet your particular goals and needs.
Mistake #2: Choosing the Wrong Trustee
The job of the trustee can be a difficult one. The trustee should manage the assets in accordance with the settlor’s wishes. He must invest prudently, keep orderly accounts, file taxes and treat beneficiaries fairly. Choosing an inept or worse, a dishonest, trustee can prove disastrous.
Mistake #3: Not Funding the Trust Properly
A trust is like a basket which holds assets. If property is not titled to the trust, you have an empty basket. Assets can be titled to the trust either during the settlor’s lifetime or at his death. Generally an attorney who draws a trust will also draw a will that “pours over” assets into the trust through the probate estate. This is somewhat inefficient. Assets titled jointly with survivorship to another person or name someone other than the trust as a designated beneficiary will not be governed by the trust provisions. Some assets should not be titled to the trust. Titling assets such as IRA’s, 401 K’s, 403 B’s and qualified annuities to the trust may cause major tax ramifications.
Mistake #4: Not Keeping Your Trust Up To Date
As your life circumstances change, your trust should evolve to meet your needs, just as your personal and financial situations change, so do the laws surrounding trusts. Plan to review your trust every 2 to 5 years or when you have a major, life changing event such as the birth of a child, death of a spouse, marriage or major change in fortune. Be sure to have all of your asset information as well as all prior trust amendments when you meet with your attorney.
Your trust is an important part of your estate plan. Avoid these costly mistakes by working with an experienced and knowledgeable attorney.