There are many reasons to create a trust, all of which may lead you towards doing so at some point in your life. For example, some people do this as a way of ensuring that their assets avoid probate upon their death.
It is one thing to create a trust. It is another thing entirely to understand the benefits of doing so and what will happen after you are gone.
When it comes to trust administration, the person who created the trust will no longer be around. Instead, it is up to the trustee to ensure that the administration process moves forward in a smooth and efficient manner.
In addition to naming a trustee, there are several other questions you need to answer:
- Who are you going to name in the trust and which assets are they going to receive?
- What steps can you take to help your heirs minimize taxes once you pass on?
- Once the trust is established, will you continue to add assets?
If you are concerned about how to properly manage a trust, if you are worried that this will negatively impact the beneficiaries in the future, there are a few things you can do:
- Keep good records. Did you know that some states require trustees to provide regular accounting updates to beneficiaries? It is important that you know what is expected of you while you are alive, as well as what your family will go through to collect the assets from your trust once you are gone.
- Make it clear regarding who gets what. Just because you create a trust does not mean that you can forget about naming heirs and pinpointing who will receive which assets upon your death. Just the same as a will, this is one of the most important things you can do. A trust is not complete until you take this very important step.
- Be careful about who you name as the trustee. You cannot make this decision on a whim, as it can impact you while you are alive and your family after you pass on. You must be able to trust this person 100 percent of the time, as they are taking on a very big responsibility. Some people choose somebody with whom they have a personal relationship. Others opt against this, realizing that it could simply complicate their situation.
Trust Administration Mistakes
Just as you can make mistakes when creating a trust, such as those detailed above, trustees can find themselves doing the same. This is yet another reason why you need to choose the right person for this task.
Here are several of the most common trust administration mistakes, all of which have been made by many trustees in the past:
- Breaching fiduciary duties. This is a very big deal, as it means that the trustee has used the trust in an inappropriate manner, such as paying for personal expenses.
- Breaking the law. A trustee that steals from the trust, for example, could find him or herself in big trouble with the law.
- Failing to stay in contact with the beneficiaries. It is important that the trustee and beneficiaries are in regular contact, as this ensures that they know what is happening at all times. For example, beneficiaries should receive periodic updates showing everything from current investments to expenses.
It doesn’t matter if you are creating a trust, acting as a trustee, or in line to receive assets being held in a trust, there is a lot that you need to know. Trust administration can be complex at times, especially if you don’t have much knowledge of this estate planning tool.
If you are interested in creating a trust, don’t be tempted to tackle this task on your own. It is best to hire an attorney to guide you, as this will ensure that you avoid serious mistakes.
Do you have questions about do it yourself estate planning? If so, download our free report entitled “Dangers of Do-It-Yourself Wills and Living Trusts.” This will help you better understand the potential pitfalls, while also learning more about the estate planning process as a whole.
There are many benefits of a trust, but you need to take all the right steps to guarantee that you take full advantage.