Trusts are an essential part of any estate plan, and it is crucial to make sure that you set them up correctly. If you’re not careful, you could end up with a trust that is not valid and does not serve its intended purpose.
Outlined below are some common mistakes people make when establishing a trust and a few tips on how you can avoid making the same errors.
7 types of mistakes
- Failing to plan ahead. Without a clear plan, it can be challenging to determine how the trust will be used and who will benefit from it.
- Underestimating the costs associated with setting up and maintaining the trust.
- Not reviewing the trust regularly.
- Choosing the wrong type of trust. There are two main types of trusts- revocable and irrevocable. A revocable trust can be modified or terminated at any time by the settlor. In contrast, an irrevocable trust cannot be changed or terminated after it has been created. You should carefully consider the type of trust that best suits your needs.
- Failing to fund the trust.
- Not naming a trustee. This means there is no one to take on the role of managing the trust and overseeing the distribution of assets.
- Putting the wrong people in charge. While it may be tempting to appoint a family member or close friend as a trustee, it is important to consider whether that person has the time, knowledge, and experience to manage the trust.
Setting up and funding a trust is a complex process. Working with a professional will help you navigate the process and avoid any potential pitfalls.