Trusts are an important tool in estate planning. When you create a trust, you realize many benefits, including the ability to transfer assets outside of probate after you pass on. These advantages could benefit you and the people you care about in important ways.
Unfortunately, problems and mistakes during the trust creation process could undermine your efforts to prepare for your future and protect your loved ones. It’s crucial that you avoid these errors, so check out these five common trust mistakes to ensure you don’t make them.
1. Assuming trusts are only for the wealthy
One of the biggest mistakes people make is assuming that they must be wealthy in order for a trust to benefit them. This could not be further from the truth.
In fact, many people with assets to protect should create a trust — especially those with property they want to pass down to loved ones but who don’t have millions of dollars in financial resources.
It’s important for people who aren’t really rich to create trusts because a trust can help protect against a big risk that people experience as they age: the risk of ending up in a nursing home.
According to the Genworth Cost of Care survey, 7 out of 10 Americans ages 65 and older will need long-term care at some point during their senior years. The average cost of this is astronomical, coming in at $9,733 per month. Medicare does not provide any coverage for this in most circumstances.
If you do not have the money to just pay for this outright and still maintain a legacy, you could end up impoverishing yourself and spending down all of your assets to pay for a nursing home before Medicaid finally kicks in and offers coverage. By this time, you will have virtually nothing left as part of your estate.
A trust can help you to protect against this outcome. You can make a Medicaid plan that protects your wealth and ensures that you don’t have to lose everything you worked hard for over the course of your life just because you must go into a care facility.
2. Creating the wrong type of trust
Another major mistake is creating the wrong kind of trust. There are different types, including a revocable living trust and an irrevocable trust. There are also trusts you might need in very specific situations, such as a special needs trust if you want to provide an inheritance for a disabled loved one and not have them lose means-tested benefits.
You need to make the right kind of trust for your situation. For example, while a revocable living trust allows you to transfer assets outside of probate, it does not protect your estate from owing estate taxes. If that’s your goal, you’ll need to explore other estate planning tools.
Making an informed choice about the type of trust you use — often with the help of an estate planning attorney — helps you to ensure that you can accomplish your goals.
3. Failing to fund your trust
When you create a trust, you have only created a legal entity. You have not yet protected any of your assets. To protect your assets, you must transfer them into the trust. This means changing the title or legal ownership. If you forget to take this step, you won’t get the benefits you are expecting.
Failing to take the proper steps to transfer the right assets into your trust is a mistake you absolutely can’t make because if you don’t take this step, your efforts at creating your trust may be wasted.
4. Choosing the wrong trustee
When you make a trust, someone must be the trustee. That’s the person who is in charge of managing the trust assets. If you’ve made a living trust, then you can choose to be the initial trustee and maintain control over trust assets during your life. You still need to name a backup trustee, though. This is the person who will guide the trust through the trust administration process and take over managing the trust if you become incapacitated or pass away.
Trustees have a fiduciary duty, which is the highest duty owed under the law. They must act in the best interests of the trust’s beneficiaries. However, you still want to make sure you take the time to think carefully about who you should pick. You need someone who will do a good job handling the legal issues raised by your death or incapacity and who can effectively manage your assets until they are transferred to your heirs.
5. Not keeping your beneficiaries updated
Finally, you need to make sure you regularly update who your beneficiaries are if your life circumstances change. For example, you may want to add a new grandchild as a beneficiary if one is born after you made the trust.
An estate planning lawyer at Edwards Law Firm can provide the help you need with trust creation so you can avoid these mistakes. The Edwards Law Firm serves Jacksonville, St. Augustine, Fernandina Beach, Mandarin, and the surrounding areas of Northeast Florida. Contact us today at 904.672.7600 to schedule your free consultation and learn how we can help.
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