The biggest mistake in estate planning is not having a plan at all, but just because you're ready to draw up a living trust doesn't mean you don't have to worry about potential errors.
What follows are five of the most frequent mistakes made in living trusts and how you can avoid them.
1. Always remember to name the correct trustee
A living trust is a written legal document through which your assets are placed into a trust for your benefit during your lifetime and then transferred to designated beneficiaries at your death by your chosen representative, called a "successor trustee."
For the successor trustee, you should choose someone who you trust completely and unconditionally as she will not only manage your affairs after your death but also may be called upon to do so should you become incapable of doing so during your lifetime.
You should talk to the person you have in mind to be sure that she understands and accepts the responsibility of managing your affairs. You may also want to consider choosing a person younger than you to lessen the odds that your successor trustee would die before you.
2. Remember to disclose all assets and ownership information
A living trust is intended to make distributing your estate upon your death quick, easy and inexpensive for the successor trustee, but if you haven't listed all of your assets and informed your attorney how title is held to all of those, your estate may not receive the full benefits of a living trust.
Aside from potentially losing the ability to pass along certain assets to your chosen beneficiaries, leaving assets out of the trust may also end up costing your estate through probate costs as well as taxes.
3. Always always remember to include a residual clause
Even if you have included all of your current assets in the living trust, you still want to include a residual clause to catch anything that has been inadvertently omitted or acquired after the trust is formed; the clause can also cover what is left after named assets have been distributed and the debts of your estate have been handled.
A residual clause can serve as a kind of safety net to help ensure that no part of your estate goes through probate or potentially ends up in the hands of unintended beneficiaries or the state.
If, for example, one of your chosen beneficiaries dies before you, a residual clause can make sure that asset passes back into your estate and save it from falling into probate, which can both prolong the distribution of your assets and also add expenses.
You can add a residual clause to your living trust at any time.
4. Don't forget to actually transfer assets into the living trust
One of the benefits of placing your assets in a living trust is that your estate can avoid probate upon your demise. In order to take advantage of this advantage, so to speak, your living trust must be the legal owner of all of your assets.
The transfer of these assets to the trust is called "funding" the trust, and without this crucial step, your living trust will likely fail to provide the quick, easy and inexpensive distribution of your estate that you had planned.
In order to facilitate the physical act of funding the trust, be sure to track down all of the paperwork associated with your assets so that the transfer goes quickly and smoothly.
5. Don't forget about Fido
If you are the caretaker of a pet, make no mistake: You need to think about what will happen to your little one upon your demise.
One way to take care of this is through a pet clause within the living trust in which you can name the person who will take responsibility for your pet's welfare and also leave money for pet care. Of course you will want to take great care in selecting the person that will take responsibility for your pet, especially since once that person has the designated money, there is no guarantee that it will be used solely for care of your pet.
If you are worried about that scenario, another option is creating a separate pet trust with your chosen caregiver as the trustee.
Final tip on living trusts
Remember that just like a car, a living trust needs to be "serviced" now and again to be sure it's in working order. Changes in your family (births, deaths, adoptions, etc.), assets, location and even tax laws require that you look at your living trust again to make sure it represents your wishes.
You should also check up on your living trust yearly, perhaps even on your birthday. What better present for you than the peace of mind that your loved ones will be provided for after you're gone?
Find out more about Living Trusts