6 common mistakes people may make when setting up a trust

On Behalf of | Feb 7, 2024 | Estate Planning

Establishing a trust in California is a prudent step in many estate planning strategies. It gives individuals a mechanism to manage and distribute their assets efficiently.

However, this process is not without its pitfalls. Several errors can jeopardize the effectiveness of trusts.

1. Inadequate understanding of trust types

California law recognizes various trusts, each serving distinct purposes. Revocable and irrevocable trusts, for instance, have divergent implications on control and taxation. Failing to grasp these differences may lead to unintended consequences that impact the effectiveness of the trust.

2. Neglecting funding procedures

Another aspect that people may overlook is the funding of the trust. Ensuring a trust holds value requires transferring assets into it. Neglecting this step can render the trust ineffectual, defeating its purpose. Improperly titled assets may be subject to probate, undermining the intended benefits of trust-based estate planning.

3. Incorrect beneficiary designations

Designating beneficiaries is a major aspect of trust planning. Failing to update beneficiary designations after significant life events, such as marriage, divorce or the birth of a child, can lead to unintended consequences, potentially causing disputes among heirs.

4. Overlooking successor trustee selection

A common oversight is the inadequate consideration of successor trustees. The successor trustee plays an important role in managing the trust if the original trustee becomes incapacitated or passes away. Failing to carefully select a trustworthy and competent successor may result in complications or delays in trust administration.

5. Insufficient communication with heirs

Leaving heirs uninformed about the existence or details of the trust can create confusion and potential conflicts during the estate settlement process. Clear communication ensures that heirs understand their roles and responsibilities. This fosters a smoother transition of assets.

6. Irregular reviews and updates

Establishing a trust is not a one-time task but an ongoing process. Circumstances change, and so should the trust documents. Failure to review and update the trust regularly may lead to outdated provisions or unintended beneficiaries. Regular reviews ensure that the trust aligns with current intentions and effectively achieves the desired objectives.

Avoiding these common mistakes can help you set up a trust that truly serves its intended purpose.