Once used almost exclusively by the ultra-wealthy, trusts have become increasingly popular estate planning tools for people of relatively modest means – and for good reason. Trusts can safeguard assets, minimize estate taxes and make it easier to transfer wealth to the next generation.
If you’re considering a trust (or already intent on creating one), it’s important to avoid some common mistakes, including the following.
Procrastination in trust planning
This may be the biggest issue to avoid in any estate planning situation. Certain trusts, especially those designed to help with Medicaid planning, need to be established early. Waiting until a crisis happens can lead to oversights and mistakes, some of which can defeat the purpose of having a trust in the first place.
Choosing the wrong type
There are a lot of different kinds of trusts out there, some revocable and some irrevocable. You need to go into the planning process with a clear understanding of your goals so that you can select the right trust. A mistake here can lead to unpleasant tax complications or poor asset protection.
Inadequate funding
This is surprisingly common. People set up the trust documents, but never quite get around to funding it – leaving their property and other assets to go through probate anyhow. In other cases, people start out well, but forget to make updates as their situation changes and they sell or acquire different assets.
Effective trust planning requires careful consideration and ongoing attention to detail. Seeking legal guidance as soon as you start to consider the creation of a trust can make it easier to ensure that a trust ultimately serves its intended purpose.