Santa Clara Estate Planning Lawyer Discusses the Top Five Mistakes People Make When Setting Up a Trust

Creating a trust can be a vital part of the estate planning process. A trust can protect your assets and benefit the family members who receive them. It’s critical to understand state laws and the steps you need to take to create a trust.

Common errors can invalidate someone’s trust and prevent surviving heirs from receiving the property left to them in the deceased’s trust. You should review these common mistakes people make to avoid them while setting up your documents.

Preparing Documents Incorrectly 

Many people try to save money by using trust templates they find online. Unfortunately, if you don’t include relevant information or make an error while preparing the documents for your trust, your trustee could face challenges distributing assets to named beneficiaries according to your instructions. As the old saying goes, “you don’t know what you don’t know…” and that’s especially relevant when creating legal documents that are designed to carry out your wishes and protect vulnerable beneficiaries when you are gone.

Choosing the Wrong Trustee 

The trustee is the person responsible for managing a trust. The person who sets up the trust can act as the trustee. You can transfer property into the account while you’re still alive. Any documents you execute should reflect how you want the assets handled upon your death.

When you pass away, your successor trustee can take over the administration of the trust. They must follow the instructions you leave and distribute everything according to your wishes.

If you choose the wrong person to act as successor trustee, they could take advantage of their authority. They might transfer property they believe they deserve to themselves or use funds for their personal or financial gain. No matter what you do, select a successor trustee you trust to carry out their duties.

Forgetting to Transfer Assets into Trust 

A trust is useless without funds and property. Your trust can only control assets you transfer into it. Even if you leave explicit instructions regarding the distribution of assets, those instructions are invalid if those assets are not held in the trust.

Since many people choose to remain the trustee throughout their lifetime, they can transfer assets into the trust until the day they die. Some trustees update their trust to include newly acquired assets or increases in funds but forget to title those assets in the trust. If that happens, your family won’t automatically receive the property you intended and might face probate court.

Leaving Assets to Young Adults without Outlining the Terms 

Most people want to secure their children’s futures. You likely want to ensure that your kids won’t have to struggle when you’re gone. However, it could be a mistake to name your young adult son or daughter as a beneficiary without including a distribution schedule. If they receive everything at once, they could spend the money recklessly.

It’s crucial to choose a trustee to manage the account on behalf of your child. When you execute the legal document, you can outline exactly how you want the assets distributed. For example, you can state you don’t want your son or daughter to receive anything until they turn 21, 25, 30, or even 40 years old. You could also create a schedule if you want your successor trustee to transfer a specific amount of funds weekly or monthly.

Failing to Update the Trust

 You shouldn’t set up a trust and never think about it again. Updates are necessary, especially after significant life events, such as:

• Marriage
• Divorce
• Birth of a child
• Death of a trustee or beneficiary
• Acquiring new assets

When you don’t review and update your trust periodically, disputes could arise while your successor trustee is distributing assets. For example, if you selected your spouse as the beneficiary but get divorced and pass away without appointing a new beneficiary, they can receive your assets instead of your children or another family member you would have chosen.

Contact Us 

If you’re considering setting up a trust, you should not proceed without consulting an experienced Santa Clara estate planning lawyer. You need a skilled legal team by your side to provide the representation and guidance necessary to protect your interests.  We are here to support you through every step of the process. To set up a consultation at our law firm, contact 408-889-1290.