Incorporating a trust into your estate plan can help secure your hard-earned assets and ensure they are distributed according to your wishes. However, creating a trust involves several details that can lead to problems later if overlooked.
Here are some common mistakes to avoid when setting up a trust to ensure it works as intended.
1. Improperly funding the trust
A trust is only effective if it holds assets, such as real estate, bank accounts or investments. This generally involves transferring ownership of assets and property to the trust. Improperly funding a trust could leave you with an empty shell that’s of no use to you or the beneficiaries.
2. Choosing the wrong trustee
Your choice of trustee is crucial when establishing a trust. As the person responsible for managing and distributing the trust assets according to your instruction, choosing the wrong trustee can lead to confusion, delays or legal challenges. You need someone trustworthy, organized and capable of handling financial and legal matters.
3. Not updating the trust
Your financial and personal circumstances may change over time and it helps to update your trust accordingly. Otherwise, you risk an outdated distribution of assets that no longer aligns with your goals, potentially leading to disputes among loved ones when you’re gone.
4. Overlooking tax implications
Trusts can have tax consequences, depending on their type and structure. If you do not properly plan for taxes, your estate or beneficiaries may have to shoulder unexpected tax burdens after your passing.
5. Using ambiguous language
The importance of clear instructions when creating a trust cannot be understated. You may not be around to clarify the terms, which is why you need to be as specific as possible about how you want your assets to be distributed. Vague terms or inconsistent language can leave room for interpretations, which could result in unintended consequences.
Taking the time to do everything right when creating a trust and seeking qualified legal guidance can help avoid these and other mistakes that could derail your carefully made plans. You will also have peace of mind knowing your legacy is in good hands and your loved ones will be well taken care of when the time comes.