Top 10 Mistakes You Should Avoid When Writing a Living Trust

Top 10 Mistakes You Should Avoid When Writing a Living Trust

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Organizing your finances, reducing estate taxes, and providing for your family – the obligations just keep on piling. No matter how good of a financial planner you are, there’s always the off chance that you might miss the mark on meeting any of these objectives.

Don’t go into panic mode – we are happy to introduce you to the concept of a revocable living trust. If you are wondering what the heck, don’t – we also come bearing a detailed guide on what a living trust is, the way it works, and how it may benefit you financially – and existentially. 

What is a living trust?

A living trust (also known as “inter vivos trust”, or a “grantor trust”) is a legal document that gives your trustees the right over your assets after you die.

And whilst sad in many ways, the authorized person who prepares a trust and includes their belongings in it is known as a grantor. A grantor is also the one who writes the trustees’ names when managing the assets included in the trust.

Why is Living Trust Needed?

A living trust is a handy arrangement to see through, but whether you agree to use this option or not is an individual choice. Still, before you make a final decision, check what living trust is able to do for you –  and why you may need it one.   

  • Avoid probate. By choosing a living trust, you will avoid the extensive legal procedure of having your estate being passed over to probate court – obligatory before it can reach your successors.
  • Confidentiality. If you don’t want the rest of your family to learn who you prefer to leave your property to, a living trust is an ideal option for you. It keeps your privacy, unlike the probate court, where other entities can learn your choice before time. 
  • Lower Estate Taxes. In some cases, a trust can reduce taxes, or more precisely, estate taxes. That is possible if the trust owns the property and not the beneficiary or heir.
  • Empathy. The funeral process is tiring, and the grieving family is sad and exhausted. By having living trust upon death, a person makes things easier for the family at those times.
What Does a Living Trust Do

What Does a Living Trust Do?

A living trust makes vital life decisions easier because it gives you a feeling that you have done all the essential necessities regarding your assets following your departure.
Once you create this agreement, you can relax knowing that your property will end in the right hands.

Since you will transfer your possessions – such as stocks, real estate, and saving accounts –  from your name to the trustee’s name – you have to be very careful in regards to what you add to the agreement.

Before you make and sign this agreement, check the most common mistakes people make, and avoid them successfully.

Living Trust Mistakes to Avoid

If appropriately written and funded, a living trust offers many benefits over a will, and it has become an excellent alternative for estate planning. Choosing this option will benefit your family by minimizing costs, eliminating the anxiety of court proceedings, and enabling you to arrange your assets in a single document, overseen by a trusted person.

Preparing a trust can be an unnerving task, and people often make naïve oversights that may create the same problems they are trying to prevent.

Here are the 10 most frequent mistakes you should avoid when writing a living trust.

1. Drafting the Document by Yourself

Some people think that verbal contracts are valid in court, but without a written document signed in front of a notary public, there is no guarantee your wish will be respected. To be considered legally valid, the trust has to be a written document, and issues may arise in the future if not correctly formatted.

The temptations to use cheap and convenient online sites that offer trust forms are hard to resist. But it is not always the best option for your beneficiaries. For your peace of mind and family’s benefit, hire an experienced attorney. The right lawyer will provide a valid plan and counsel on the best option for your case.

2. Not Consulting Family

Before putting your intention on paper, it is a good idea to discuss your plans with family members, that way you can attempt to resolve any potential issues after your passing. The trust is created for the benefit of one or more inheritors, so identifying your intentions opens the discussion for who wants what from your estate.

If the conversation reveals any disagreements, you can modify the trust to prevent anybody from contesting your wishes. The court’s chosen trustee cannot supervise a trust without properly named beneficiaries.

3. Forgetting to Fund the Trust

Putting your plan on paper is half the battle, the final step is funding the trust before your death, this is done by transferring the assets and the beneficiary designations in the trust.

Without the funding process, some properties may go through probate. The living trust aims to bypass the probate process.

Selecting the Wrong Trustee

4. Selecting the Wrong Trustee

Carefully consider the candidate for the role of trustee. You need a responsible person that is capable of fulfilling the obligations. Ask yourself how long will the trust last? How busy is the candidate, can they balance personal responsibilities with the commitment to the trust? You can designate multiple co-trustees or choose a legal firm.

5. Failure to Use Clear Instructions

When formulating the text of the document, do not use words such as “inclination” and “hope’, you are creating a legal responsibility, not a wish list; some courts may not accept the precatory language. This type of wording opens possibilities for misunderstandings and misinterpretations. Clear instructions drafted by a lawyer can help avoid future complications.

6. Forgetting About Digital Assets

Do you know what qualifies as assets? The house is not the only property you are leaving to your children. Items such as cars, jewelry, artworks, and digital assets can all be part of the portfolio. The concept of digital assets is new but not to be ignored it encompasses everything from cryptocurrency to social media accounts. In the era of social influencers, a social profile or channel can be a valuable commodity.

Bank accounts can be included in the final document. Without a detailed living trust, assets titled to your name will go through probate after you die. So, audit everything you own, no matter how insignificant it may seem at first glance, and find a place for it in the final document.

7. Not Protecting a Disabled Beneficiary

Frequently trusts are created to provide for a person with special needs. The inheritance may not last forever, especially if expensive medical treatments are required, and by creating a specially-drafted trust, you are protecting their eligibility for public assistance.

The alternative is to leave the inheritance to another sibling. It will be their responsibility to continue to take care of the disabled child. But there are no promises that the other family member or friend will not die or be sued, and situations like these will block the assets in the inheritance. A lawyer will help you get the safest option for your beneficiary.

8. Leaving Out Charities

Regular donations you were making in the past, can be continued after your death. Preferred institutions like the local church you attend every Sunday or former alma mater, can be included in the living trust as well. 

9. Not planning for Final Arrangements

The point of a living trust is to make sure family members get the estate you planned for them without high tax payments and court proceedings. But you can also help your family by planning for burial arrangements.

Your children may not be able to take care of you as you advance in age, and stipulations about the end of life care can be useful. Unfortunately, Alzheimer’s is a pandemic among the baby boomer generation. If you are not able to make a cognitive decision, a living trust can offer some protection, so it is a good idea to plan for eventually assisted living and any other care.

10. Review Your Trust Over Time

Living Trusts are rarely made at the death bed. Life usually continues for years, maybe decades. And in that period, you may experience many happy moments, a new marriage, or a birth in the family, and sometimes even tragic events. Natural disasters destroy property, and deaths in the family change the plans you made all those years ago. That’s why it is necessary to make frequent updates to the living trust according to developments in your life.

Conclusion

If you do not make a living trust, the authorities are going to create one for your estate after your death. And we can only wonder how many mistakes will they make? Your wishes will be respected, only with a living trust that is legally binding. 

Author

  • Raymond Hickman

    Raymond Hickman is a distinguished lawyer, writer, and legal commentator with extensive experience in various areas of law. He is widely recognized for his exceptional legal knowledge, insightful analysis, and engaging writing style, which have earned him a reputation as a leading voice in the legal profession.With his exceptional legal expertise, insightful analysis, and engaging writing style, Mr. Hickman has earned a reputation as a leading authority in the legal profession. His contributions to the field of law have been recognized by his peers, clients, and the wider legal community, making him a valuable resource for anyone seeking legal advice or insight.

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