A revocable living trust has long been an important part of estate planning. Done correctly, a living trust can help protect your heirs from creditors and probate and supply them with any funding you’d like them to have.
However, a revocable living trust might not meet your goals if it isn’t arranged properly and periodically reviewed for any changes to your circumstances that would make a revision necessary. As you make a living trust part of your estate plan, you want to ensure that you avoid the following eight most common mistakes:
1. Leaving out assets. Assets that are titled in your name will go through probate after you die. Aside from certain annuities and qualified retirement funds, make sure that you’ve included all of your assets in your trust while you’re still alive. Possibly, you can designate your trust as a beneficiary of your accounts.
2. Drafting the livign trust on your own. There are an abundance of DIY software packages and Internet sites that offer living trust forms. These might be cheaper than hiring an attorney to help you, but cheaper isn’t always the best option. This is especially true for those with estates that aren’t plain and simple.
3. Picking the wrong person to act as successor trustee. Make sure that the trustee you pick is the best and most capable person to manage your assets, not the person you feel obligated to pick. You might consider multiple co-trustees to manage your assets after your death or during any period of disability, or you could even name a trust company or bank as a co-trustee or trustee. In any case, pick the trustee(s) that you feel would best act in your stead.
4. Assuming trust assets aren’t subject to estate taxation. Keep in mind that all assets in a revocable trust will be considered when calculating your gross estate for estate tax purposes once you’ve passed away.
5. Thinking that a trust protects you from creditors. Even though your assets are in a trust, the majority of living trusts are composed in a manner that still gives you full access to the assets. As such, those assets will still be legally available to your creditors as well. That said, a correctly drawn trust can offer your children and spouse protection from their own creditors.
6. Assuming trust assets will not be counted for Medicaid eligibility determination. Assets in a trust are counted during the Medicaid eligibility determination process.
7. Forgetting to name your charities as beneficiaries. If you would like to continue any regular donations to a charity, school, or church after you pass away, then you might want to include them as you arrange your living trust.
8. Not periodically reviewing your trust. Life goes on after your trust is drafted. Of course, this means possible births, marriages, divorces, deaths, disasters, changes to your retirement plan or employment, and so forth. These types of changes often make it necessary to update your living trust.