Living trusts can be great estate planning tools, helping you streamline the distribution of your assets and ensuring your wishes are carried out. Though a Will may be sufficient to address the handling of your assets, your estate attorney or financial planner may recommend considering a living trust depending on your wishes, scope of what you’re passing down, and other factors. If you decide to create a living trust, here are 4 common mistakes to avoid.
1. Choosing the Wrong Successor Trustees(s)
While your adult children may be the obvious choice, they may not necessarily always be the best choice to serve as your successor trustee. It’s important that the person or people you put in charge of your trust are responsible, (preferably) younger than you, and committed and able to execute your wishes. Your children may check all the boxes, but if they’re located across the country or preoccupied with raising families of their own, they may not be in the best position to handle your estate.
Whoever you choose to entrust with the distribution of your assets, make sure they’re comfortable with the decision as well. Communication is essential when crafting your estate plan. Your wishes will be interpreted as more than just a transfer of wealth. If there are any hurt feelings you won’t be around to fix it.
2. Neglecting to Disclose All Assets
Living trusts are documents designed to expedite and simplify the distribution of your assets after death. If you’re not outlining all assets and items under ownership in this document, your trustees are likely to hit some roadblocks. This can quickly lead to expensive tax implications, probate costs, or a delay in the execution of your wishes. One way to help combat the risk of neglecting certain assets is to seek professional assistance in drafting your living trust. It’s important to keep in mind the comprehensive nature of this document. You want to be sure you have power over your legacy and your living trust works how you intended it to.
3. Not Funding Your Trust
To put your living trust into effect, you must make it the “owner” of your (non-retirement) assets. Transferring these assets to the trust is called “funding.” Without this crucial step, your assets won’t be protected. This would negate the trust’s main appeal of being quick, simple, and inexpensive to carry out. In fact, any assets that are not funded to the trust could be subject to going through probate.
It is also important to utilize Tenants by the Entirety joint ownership, when applicable, prior to changing the ownership of these assets to the trust. This joint ownership is only available for those married couples who reside in states that recognize it. This type of ownership has unique provisions for creditor protection and titling your joint assets like this first and then into the trust permits you to keep these key provisions.
4. Letting Your Trust Go Stale
Completing a living trust is a big accomplishment, but don’t be tempted to check it off your list for good. As changes in your family occur, whether it’s a death, birth, or marriage, you’ll want to be sure your trust is kept up to date with the right beneficiaries and asset distribution plan.
Reviewing and updating it regularly can help you stay on top of the latest tax laws while ensuring your newly acquired assets are included. If checking yearly sounds like too much, pick a time interval that works best for you. The most important thing to remember is that you want your living trust to always be an accurate reflection of your current state of affairs.
Preparing for the unexpected is easier said than done, but setting up a living trust can help protect your assets later down the line. Just remember to keep these common mistakes in mind. When done right, a living trust can be a great help and source of relief to loved ones while you are living but incapacitated and after you’re gone.
FJY advisors have decades of experience working through estate planning issues and holistic financial planning for all aspects and stages of life. Give us a call to see how we can help you!
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.