Mistakes People Make When They Create Their Revocable Living Trust

Creating a revocable living trust can be a smart way to manage your estate and ensure your assets are distributed according to your wishes after your death. However, there are several common mistakes that people make when setting up and managing these trusts.

Here's a video I made discussing mistakes that people make when they establish their revocable living trust.

Here are some of the most frequent pitfalls and how to avoid them:

1. Failing to Fund the Trust

One of the most significant mistakes is not transferring assets into the trust. Simply creating the trust document isn't enough; you must also re-title your assets (like real estate, bank accounts, and investments) in the name of the trust. If you don't, those assets may still go through probate, defeating the purpose of the trust.

Solution: Ensure that all intended assets are properly titled in the name of the trust. Periodically review and update the trust as your assets change.

2. Not Updating the Trust

Life changes, such as marriage, divorce, the birth of a child, or the death of a beneficiary, can necessitate updates to your trust. Failing to update your trust to reflect these changes can lead to unintended consequences.

Solution: Review your trust at least annually and after any significant life event. Update it as necessary to ensure it reflects your current wishes and circumstances.

3. Improperly Drafted Documents

A poorly drafted trust document can lead to confusion and legal challenges. Using generic templates or attempting to draft the document without professional assistance can result in omissions or mistakes.

Solution: Work with an experienced estate planning attorney to draft your trust. They can ensure that the document complies with state laws and accurately reflects your intentions.

4. Not Naming a Successor Trustee

A successor trustee is someone who will manage the trust after you pass away or become incapacitated. Not naming a successor trustee, or not selecting an appropriate one, can create confusion and conflict.

Solution: Choose a reliable and trustworthy individual or institution to act as your successor trustee. Discuss your choice with them in advance to ensure they are willing and able to fulfill the role.

5. Ignoring Tax Implications

While a revocable living trust does not provide tax benefits during your lifetime, it can have tax implications after your death. Failing to consider these implications can result in unnecessary taxes for your beneficiaries.

Solution: Consult with an estate planning attorney or tax advisor to understand the tax implications of your trust and plan accordingly. They can help you structure your trust in a tax-efficient manner.

6. Overlooking Personal Property

Many people focus on transferring significant assets like real estate and investments into their trust, but overlook personal property such as jewelry, art, and family heirlooms.

Solution: Create a comprehensive list of your personal property and include instructions for its distribution in your trust. This can help prevent disputes among beneficiaries.

7. Not Communicating with Beneficiaries

Lack of communication with your beneficiaries about the existence and terms of your trust can lead to misunderstandings and disputes after your death.

Solution: Discuss your estate plan with your beneficiaries. While you don't need to disclose every detail, ensuring they understand your overall intentions can help avoid conflicts.

8. Misunderstanding the Role of the Trust

Some people mistakenly believe that a revocable living trust can protect assets from creditors or provide significant tax benefits during their lifetime. In reality, a revocable living trust is primarily a tool for avoiding probate and managing your assets if you become incapacitated.

Solution: Understand the limitations and benefits of a revocable living trust. Work with a knowledgeable estate planning attorney to ensure that your estate plan meets your goals.

9. Failing to Plan for Incapacity

A revocable living trust can provide for the management of your assets if you become incapacitated, but only if it includes appropriate provisions and if the trustee is prepared to act.

Solution: Include detailed instructions in your trust about how your assets should be managed if you become incapacitated. Ensure that your successor trustee understands their responsibilities and is prepared to act.

Conclusion

A revocable living trust is a valuable estate planning tool, but it's important to avoid common mistakes to ensure it functions as intended. By funding your trust properly, keeping it updated, and working with professionals, you can avoid these pitfalls and ensure your estate is managed according to your wishes. Regular reviews and clear communication with your beneficiaries will also help prevent misunderstandings and conflicts.