Are you expecting your assets to be transferred to your heirs efficiently and effectively by way of a well-designed trust? Unfortunately, there are many common mistakes that often arise, which can disrupt your plans and frustrate your loved ones in the process. Click through for tips on how to avoid some of these common problems so that neither your time nor money is wasted.
When people want to bypass probate, they often turn to trusts. Another benefit of trusts is that they can help you establish legally backed instructions as to how your assets will be distributed after you pass away. The hope is that you make time to establish a trust and identify the beneficiaries of your estate.
However, while trusts are amazing tools that people can take advantage of while estate planning, it can be risky to set up a trust on your own. Let’s take a look at common errors that people make when setting up their own trust accounts without professional guidance.
Mistake No. 1: Forgetting to put funds in the trust account
Oops! You didn’t fund the trust! While this sounds like an impossible outcome, you’d be shocked by how easy it can be to go through the effort of paying an attorney and setting up the account only to leave your trust account empty!
If this happens to you, look at the paperwork associated with your account and make sure you retitle the assets in your trust in accordance with what your attorney instructs you to do. If you’re working with an insurance policy or a retirement account, all you have to do is update the designations of your beneficiaries.
For those of you who need to fund the trust of a bank account or an account unrelated to retirement, be sure to contact your financial institution. Its employees will know what you need to do as you seek to fund your trust. Likewise, if you have a trust established for real estate or business purposes, talk to your lawyer for insights into how you can transfer your assets into your trust account.
It’s important to make sure your assets are transferred into your trust because failing to fund the account will elongate the process of distributing assets to your beneficiaries. Probate can take months if not years, so equip your beneficiaries with the advantage of timeliness by funding your trust in advance.
Even if you have a pour-over will where some if not all of your assets are not already included in your trust, it is still important to make it clear that your assets are to be included as part of your trust when you die. While your assets will be considered as part of your trust even if you don’t make this specification, the assets listed in your pour-over will have to go through the probate process after all.
Mistake No. 2: Naming the wrong person as your trustee
Uh-oh! It appears you appointed the wrong person as your trustee!
The decision of who to establish as your estate’s trustee can be a hard one to make. You might even think you know who you want as your trustee only to change your mind a year or two later. Relationships are difficult, and it’s not uncommon to no longer be friendly with the person you initially listed as the trustee of your estate.
If you’re not on good terms with your trustee or simply want to change the trustee, no matter the reason, contact your attorney. You aren’t stuck with the person you initially listed as your trustee, so it’s important to notify your attorney of your decision to replace your trustee before it’s too late.
Mistake No. 3: Disliking the spouse of your beneficiary
Oh no! You find out that one of your beneficiaries has decided to marry someone you either don’t trust or simply cannot stand!
Maybe you worry that certain tax laws are going to negatively affect your beneficiary’s inheritance. Now, before you do anything, make sure you know which type of trust you established in the first place.
For example, if you have a revocable trust in place, contact your estate planning attorney. Notify them of your desire to make a change that prevents your beneficiary’s new spouse from taking what is rightfully your beneficiary’s to claim. Also, make sure you appoint secondary beneficiaries who will receive the funds should your primary beneficiary pass away. Otherwise, your assets will trickle down to the trustee, who will suddenly become the beneficiary of your trust’s assets.
Mistake No. 4: Choosing the wrong type of trust account
Yikes! You selected the wrong type of trust account!
This is an easy mistake to make, especially if you don’t know that there are different types of trusts to begin with. Ultimately, there’s no one-size-fits-all trust. For instance, there is a difference between a trust designed to minimize the amount of taxes your estate will owe and a trust designed to benefit minors, whether for educational or noneducational purposes. Therefore, you must make sure the type of trust you open is properly suited to the intention behind the trust.
Mistake No. 5: Thinking all you need is a trust and nothing more
Uh-oh! You only established a trust because you thought it was all you needed, but this isn’t true!
There are many situations that could require you to have documentation outside a trust. For example, what if you want to declare your medical preferences in the event you face physical or mental complications and are declared unfit to make executive decisions on your own behalf? The goal would be to document your preferences in addition to establishing your trust.
You can evade unfortunate outcomes by thoroughly discussing your options and talking about potential issues with your estate adviser. By consulting the right professionals, including attorneys who specialize in estate planning and certified public accountants who know how to manage your assets, you can make sure your trust is in tip-top shape.