Do you have a beneficiary with special needs who are ill-equipped to manage the inheritance? What about when it comes to bequeathing complex assets that require ongoing attention after you’re gone? This is where a trust can help. When you use a trust, you bypass probate, and you leave precise, legally binding instructions for how to distribute and potentially maintain your assets.
However, trusts are not without their minefields. Here are some common problems to avoid:
Choosing the wrong trustee
Even if you act as your own trustee during your lifetime, you’ll need someone else to execute transactions and manage assets after you’re gone. Maybe you figure you’ll get your children to do this, however, this can lead to conflicts among siblings who have different points of view. Consider appointing a close family friend or corporate trustee instead. You can even utilize an individual and a corporate trustee as co-trustees.
Consider where the trustee lives
Some states, like Ohio, tax the income from trusts administered in their states. Some states offer better protection from creditors than others. Speak with an attorney about the most appropriate place to create your trust.
Don’t underestimate financial needs
It’s essential to account for different scenarios to avoid the possibility of your loved ones running out of funds. Think of the costs your beneficiaries might incur to maintain cherished, but nonfinancial, assets like property. For example, most houses require repairs and general upkeep and those costs could be considerable for higher-priced residences.
Not updating your trust
You may want to periodically change your trust if circumstances arise. For example, there may be a death or divorce, or what about the ages that your children and grandchildren receive their inheritances, are they still appropriate? It’s important to ensure that anyone appointed as a guardian is still willing to take on the responsibility for minor children. It’s good practice to meet with your estate-planning attorney at least once every 3–5 years to address any changes.
A trust can help your heirs bypass costs, delays and headaches, but only when designed well. Your wishes will only be carried out to the extent of the trust established to do so. If you avoid mistakes when setting up trusts, you won’t risk finding out that your trust doesn’t do what you need it to do. Seek help from an experienced trust and estate planning attorney, like AmySue Taylor.
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