Creating a living trust is absolutely not a do-it-yourself project. An experienced estate planning attorney can help you avoid many costly mistakes. Let’s take a look at the top 10 mistakes made in creating living trusts:
1. Failing to Protect All Assets. For a living trust to be truly effective, all assets must be ascertained and accounted for. If you choose to include the assets in the trust, they must be properly titled; otherwise, they may not be considered assets of the trust. If that happens, those assets will end up going through the probate process which may defeat the purpose behind creating the trust in the first place.
2. Not Planning for Administration Costs. Trusts are not free, but neither is probate. Compare the costs and fees of probate administration versus the fees to maintain a trust, then you can make an educated decision on whether the fees are justified.
3. Assuming You Do Not Need a Will. Often a will is needed in conjunction with a living trust because you may not include all of your assets in the trust. This allows you to include a residual clause in your will that names your beneficiaries to ensure all property is distributed as you intend. Without a will as a backup, any unaccounted for property will be distributed according to the Maryland laws of intestate succession.
4. Drafting a Living Trust Yourself. As mentioned earlier, this is not a DIY project. A living trust requires careful planning and specific language, otherwise, it can be counterproductive if mistakes are made.
5. Hiring the Wrong Lawyer. You do not want to attempt to draft this yourself, but you also should not hire a general practice attorney or attorney specializing in another field of law. Only experienced estate planning attorneys should tackle the complexity of creating living trusts.
6. Being Too Frugal. Creating a living trust costs more than drafting a will. Weigh out the long-term benefits over the up-front savings.
7. Failing to Understand the Tax Avoidance Strategy. A simple living trust is not going to avoid or minimize estate taxes. Although, with the current exemption rates, this may not be an issue for you. Your estate planning attorney needs to discuss your net worth, types of assets held and advise you on the type of living trust needed if estate tax minimization is one of your goals.
8. Failing to Include Incapacity Planning. When creating a living trust, you should not neglect to also prepare power of attorney documents that will name agents to step in and handle your healthcare issues and financial matters in the event of your incapacity.
9. Being Too Controlling. While a living trust allows you to implement many creative asset distribution strategies such as payment plans, inheritance delays and conditions to inherit, going overboard with these will only upset your beneficiaries. Make sure you are reasonable and use them to protect the assets and/or beneficiaries without attempting to control from the grave.
10. Forgetting to Fund the Trust. This occurs more often than it should. After going through the process to draft and create the trust, the grantor fails to follow up by properly moving assets into the name of the trust. Depending on the type of asset, the process for this varies. This is an essential step and a knowledgeable estate planning attorney will assist in making sure this is done properly.
For more information on creating a living trust correctly, contact the estate planning attorneys at Stouffer Legal in the Greater Baltimore area. You can schedule an appointment by calling us at (443) 470-3599 or emailing us at office@stoufferlegal.com.
