Posted in Triplett & Carothers on January 5, 2022
A trust is an estate planning document that disposes of your assets after your death. Trusts are an effective planning tool for those with detailed plans for their worldly goods. Will your trust achieve the purpose it was created for? Not if you make one of the following errors:
Common Missteps Made in Creating Trusts
Failure to Fund
You have to fund your trust by transferring ownership of your assets from your name to the name of the trust. Assets titled in your name will have to go through probate.
Failing to Name a Beneficiary
A trust is a contractual relationship established between you as the creator of the trust and the trustee, the person charged with managing the trust. Without at least one beneficiary, there can be no viable trust agreement.
If a beneficiary dies or becomes incapacitated after the trust is created and the trust is not amended or doesn’t address this issue, the trustee may need to seek direction from a court before proceeding with the trust administration.
Failing to Protect Beneficiaries from Lawsuits or Divorce
You have the power to draft the trust so that assets are protected from creditors or divorce proceedings for the beneficiaries. This is a valuable protection for your children and grandchildren.
Choosing the Wrong Trustee
Your trustee should be someone you can genuinely expect to live up to the fiduciary duty, managing your assets and your trust effectively and in line with your wishes.
Failing to Put Your Trust in Writing
It’s a common misconception that a trust created orally between family and friends can be legally binding. In fact, trusts that involve real property must be in writing.
Use of Ambiguous Language
The trust should provide specific directions and conditions for distributions to be made directly to beneficiaries or on behalf of beneficiaries. If the trust gives the trustee discretion regarding distributions, disputes can erupt. Beneficiaries may believe they are entitled to distributions when the trustee doesn’t think that the distributions are in the best interest of the trust or the beneficiaries.
Failure to Provide a Pour-Over Provision in Your Will
This clause transfers any remaining assets to your trust when you die. Without this, any assets or property that haven’t been transferred to your trust at the time of your death will need to be probated and may not be disposed of correctly.
Failure to Name a Successor Trustee
You may find that the person you selected to manage your affairs is not a good manager. Your choices for successor trustees should be family members or friends you can trust. Corporate trustees, such as banks, also are an option.
Pairing Sibling Trustees
This isn’t necessarily a mistake, but should be considered carefully. Siblings don’t always get along and family infighting is the fastest way for your estate to be squandered in court.
Forgetting to Review Your Trusts
This can lead to unwanted consequences, so review what your trust says at least once a year to ensure the terms still align with your overall estate planning goals.
Reach Out To an Experienced Trusts Attorney in Kentucky or Indiana
Trusts are versatile and powerful estate planning tools, but only if used correctly. Work closely with qualified professionals and be sure to make your wishes known and ask questions about anything that isn’t clear.