common mistakes

Avoid These 5 Big Trust Mistakes

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A trust can be an important part of an estate plan. Trusts have valuable benefits both for you and your loved ones. Unfortunately, many people do not understand how they work. This can lead to costly mistakes that undermine your efforts to create your legacy.  common mistakes

You don’t want trust mistakes to cost you the chance to protect your assets and build the most secure future for the loved ones you leave behind. To avoid this, look out for these five big mistakes when it comes to trust creation.

1. Not creating a trust when you need one

One of the most common mistakes people make regarding trusts is not including them in their estate plans at all. Far too many people assume that trusts are just for rich people or that they are too complicated. In fact, trusts can be for anyone who has assets that they want to protect.

There are many potential risks to your wealth, and trusts can help you to avoid some of the biggest. For example, a need for nursing home care is one reason many people lose the chance to leave a legacy. Trusts can help make sure that doesn’t happen to you.

According to the Genworth Cost of Care Survey, as many as 70% of people 65 and older will need nursing home care sometime during their lives. When they do, it can lead to financial disaster. Genworth reports that the average cost of a private room in a nursing home is $9,733 per month. That’s a huge sum of money. It also is not going to be covered by Medicare or private health insurance in most circumstances.

Medicaid does cover nursing home care, so it can pay for you to get home care or care in a facility. Unfortunately, it is a means-tested benefit, and you cannot qualify if you have many financial resources. Many people have to impoverish themselves and spend down their assets to qualify for Medicaid, which means losing all they have worked for. A trust can help prevent this from happening to you by allowing you to qualify for Medicaid while keeping your wealth safe.

This is just one of many reasons why you might need to create a trust. If you have a disabled loved one you want to provide for without affecting their access to means-tested benefits, a trust can allow you to do that. You can also use a trust to pass assets to loved ones outside of the probate process. It’s not just wealthy people who need to do these things — many people can benefit from using a trust to accomplish these goals.

2. Not making the right type of trust

There are different kinds of trusts for different purposes. Making the wrong one is another costly error you can’t afford to make. For example, while a living trust can enable the transfer of assets outside of probate, it is not going to be helpful in avoiding estate taxes or protecting your assets in case you need nursing home care.

You need to look into the different options for trust creation to find the right tools to accomplish your specific goals. Do this research before you start the process of creating a trust. Otherwise, if you make the wrong trust, this may not be discovered until it is too late to correct the issue.

3. Not funding your trust properly

Once you have created your trust, you aren’t done with this step of the estate planning process. You have to fund your trust. You’ll need to do this by changing the ownership of your assets. For example, you may need to re-title property so the trust becomes the official new legal owner.

If you do not transfer the ownership of your assets to your trust, that property will not get the protections that the trust can provide. So don’t forget this step.

4. Not selecting the right trustee

When you create a trust, you have to name a trustee. This person will be in charge of managing the trust assets and taking care of the trust administration process, which is how assets transfer after death.

If you have created a living trust, you can be the trustee during your lifetime. However, you still need a backup trustee who is going to take over in the event of your incapacity or your death. You should think carefully about the person who you want to select.

The trustee has a fiduciary duty to manage your trust assets in the best interest of your beneficiaries. This is the highest duty that a person can owe under the law. Still, you want to select someone who is capable of taking care of your assets well. Think about the people you know who will be able to tackle the administrative process and who will do a good job protecting your wealth when you can’t.

5. Not updating your beneficiaries when you need to

Finally, you’ll want to remember to update your beneficiaries as needed. These are the people who the trust will benefit. You may want this to change over time. For example, if you have a new grandchild, you may want to add them as a beneficiary. You don’t want to forget to do this or you could leave someone out.

The good news is, you can avoid these mistakes with the right legal help. The McGee Law Firm is here for you. Call 817-899-3286 to schedule a free consultation.

Brandon McGee
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