7 Common Mistakes People Make When Creating a Trust

Creating a trust can be a crucial step in ensuring that your assets are managed and distributed according to your wishes; however, it is not a process without potential pitfalls. In fact, people often make mistakes when creating a trust, which can lead to complications and unintended consequences for their beneficiaries. To help you prevent making them, the Essex Junction attorneys at Unsworth LaPlante, PLLC discuss seven common mistakes people make when creating a trust.

1. Not Funding the Trust Properly. One of the most common mistakes people make when creating a trust is forgetting to transfer their assets into the trust. A trust is only effective if it is funded properly, meaning that you must title your assets in the name of the trust. To avoid this mistake, make sure that all of your major assets, such as real estate, bank accounts, investments, and life insurance policies, are titled in the name of your trust. You should also ensure that the beneficiary designations on life insurance policies and retirement accounts are updated to reflect the trust as the beneficiary, if appropriate.
2. Failing to Review and Update the Trust Regularly. Another mistake people make is assuming that once their trust is created, it will remain effective indefinitely; however, life circumstances change over time, and it is essential to review and update your trust regularly. If you get married, divorced, have children, or experience any other major life event, your trust may need to be modified to reflect those changes. Failing to update your trust can lead to unintended consequences, such as excluding a new spouse or child from your estate plan.
3. Not Appointing the Right Trustee. Choosing the right Trustee is one of the most important decisions you will make when creating a trust. The Trustee is responsible for managing and distributing your assets according to the terms of the trust. Many people make the mistake of appointing a family member or friend without considering whether they have the skills, time, and temperament necessary to handle the responsibilities of the role. To avoid this mistake, look for someone who is trustworthy, organized, and capable of managing financial and legal matters. Alternatively, you may choose to appoint a professional trustee, such as an attorney, accountant, or trust company, who can handle the administrative duties and ensure the trust is managed properly.
4. Overlooking Tax Implications. Trusts can have significant tax implications, and many people overlook this aspect when creating their trust. For example, certain types of trusts, like irrevocable trusts, can help minimize estate taxes, but they may also have different tax treatment for income generated by the trust. To avoid this mistake, work with an estate planning attorney who can help you understand the tax implications of your trust and develop strategies to minimize taxes. This could include choosing the right type of trust, naming tax-efficient beneficiaries, and considering ways to reduce estate taxes, such as making gifts during your lifetime.
5. Not Being Specific Enough with Instructions. Many people make the mistake of being vague or imprecise in their trust terms. For example, they may say, “I want my assets to be divided among my children,” without specifying how they want that division to happen. This lack of clarity can create confusion and potential conflict among beneficiaries. To avoid this mistake, be as specific as possible in your trust. Clearly outline how you want your assets to be distributed, who will receive what, and when.
6. Failing to Plan for Incapacity. Many people create trusts to address the distribution of their assets after their death, but they overlook the potential for incapacity during their lifetime. If you become incapacitated and are unable to manage your own affairs, a well-drafted trust can provide for the appointment of a successor Trustee who will step in to manage your assets on your behalf.  To avoid this mistake, make sure your trust includes provisions for incapacity and specify who will take over as Trustee if you are no longer able to manage your own assets.
7. Not Communicating Your Plans with Your Family. Finally, many people create a trust without discussing it with their family members. While it is not necessary to share every detail, failing to communicate your intentions can lead to misunderstandings and even family disputes after your death. Beneficiaries may be caught off guard by the terms of the trust, leading to conflict or feelings of resentment. To avoid this mistake, consider having an open conversation with your family members about your estate planning decisions. While it is important to respect your privacy, making sure your loved ones understand your goals and the reasons behind your decisions can help avoid confusion and conflict later on.

Can We Help You Avoid Making Mistakes When Creating a Trust?

For more information, please attend one of our upcoming FREE webinars. If you would like assistance to avoid making mistakes when you create a trust agreement, contact an experienced Essex Junction estate planning attorney at Unsworth LaPlante, PLLC by calling 802-879-7133 to schedule your appointment today.