You might be thinking of including a trust in your estate plans due to the asset protection and tax benefits. However, it helps to avoid mistakes that could come in the way of enjoying these and other advantages of a trust and derail your estate plan.
Here are some common pitfalls you should be wary of when creating a trust to safeguard your estate plan.
Choosing the wrong type of trust
There are many types of trusts to choose from, and picking the right one is crucial. For instance, creating an irrevocable trust means losing control and ownership of the trust and its assets, unlike with a revocable trust. Additionally, specialized trusts can help achieve specific objectives, like special needs trusts, charitable trusts and spendthrift trusts. Making the right choice is crucial to your plans.
Improperly funding the trust
You must properly fund the trust you create. This may involve retitling or transferring assets to the trust. Otherwise, you may end up with an empty shell that will not benefit anyone. The affected assets may be subject to intestate succession laws that could be contrary to your wishes.
Appointing the wrong trustee
The trustee is the person responsible for managing the trust and its assets. You do not want to appoint someone irresponsible or untrustworthy as they could mishandle the trust. It’s also advisable to appoint a successor trustee to step in when needed.
Poorly drafted trust documents
Ambiguities or errors in trust documents can increase the chances of disputes and legal challenges that could void the trust. As such, you should use clear language that leaves no room for confusion or misinterpretation. This can go a long way in avoiding legal issues.
These are just a few of the avoidable mistakes that can undermine the effectiveness of a trust and lead to unnecessary complications. Reaching out for legal assistance can help you do everything right and make the most of these estate planning tools.
