A living trust is a legal document in which your assets are put in a trust to benefit you during your lifetime and then transferred to your beneficiaries after you die. It can help you save money, avoid probate, and increase your privacy. However, before you decide to establish a trust, you should learn how it works so that you can avoid costly mistakes.
Here are some common trust mistakes:
Drafting a Trust on Your Own
There are many DIY software packages that allow you to draft a trust yourself. It may be tempting to use this software because it’s cheaper than hiring an estate planning lawyer. However, trusts are complex documents, and it’s easy to make mistakes if you don’t have a legal background. That’s why it’s worth it to pay the extra money to hire an experienced estate planning lawyer. He or she can help you draft a valid trust that ensures your wishes are carried out.
Selecting the Wrong Person As the Successor Trustee
The successor trustee is responsible for making sure your property is distributed to the designated beneficiaries after you die. The job is a huge responsibility, so choose a person you know can handle the task. The person you choose should be trustworthy, organized, financially savvy, and actually have the time to deal with your trust.
Believing a Trust Protects You from Creditors
A common misconception people have about trusts, is that they protect them against creditors. The truth is, however, that your assets will still be legally available to your creditors.
Thinking Trust Assets Won’t Be Taxed
Just because your assets are in a trust doesn’t mean that they aren’t subject to estate taxes. The assets in your trust will be considered when calculating your estate for tax purposes.
Not Funding the Trust
A trust can only control the assets you put into it. Many times, people don’t complete the funding process and some of their assets have to go through probate. To avoid any issues, make sure your trust is fully funded.
Failing to Update Your Trust
It’s important to update your trust every time you go through a major life change like a marriage, a divorce, or the birth of a child. If you don’t make the necessary changes, your trust might not reflect your current wishes. For example, if you get divorced, you likely don’t want your ex-spouse to be a beneficiary anymore. If you update your trust, you can remove his or her name from the document.
If you would like to establish a trust, consult with an experienced wills and trusts lawyer, like a wills and trusts lawyer in Sacramento, CA, today.
Thanks to Yee Law Group, PC for their insight into some of the most common mistakes that are made when creating a trust.