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estate planning and elder law

The Biggest Mistakes Made with Trusts

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Mistakes that are usually ugly, often costly and sometimes fatal – at least to an estate plan.

The Dallas Morning News’ recent article entitled “Owning your trust: Avoid these five common trust mistakes” explains these big mistakes frequently made with trusts.

Mistake 1: Failing to fund the trust.  Funding a trust involves transferring assets into the trust and managing assets with the trustee. It also makes the assets subject to the trust’s terms. A trust without assets is a worthless piece of paper and a waste of money, according to Jayson Lenox, Attorney at law with Beck, Lenox & Stolzer Estate Planning and Elder Law.

Mistake 2: Placing your homestead into the trust. For example, a homestead designation in Texas carries several benefits, like creditor protection, tax exemptions and bankruptcy protection. Those are lost when you put your homestead into a trust, unless it is a “qualifying trust.” If your homestead has a mortgage, transferring it into a trust may cause a default. A mortgage company may also refuse to refinance an existing mortgage or extend new financing on a homestead that is in a trust.

Mistake 3: Funding the trust with a vacation home. This can be a headache for the trust’s beneficiaries. Most of us don’t leave enough money in the trust to maintain the home in perpetuity. Your children and their spouses will fight over holiday usage. It ends up being an expensive albatross. If you decide to keep the property in the family, ask an experienced estate planning attorney about a family limited partnership or an LLC. However, before you take this step, ask your children if they want to keep it.

Mistake 4: Failing to understand the trust document. While most trusts are long, boring and contain provisions that make absolutely no sense to anyone but the IRS, if you rely on a trust for your financial future and legacy, you must know what it says and does.

Mistake 5: Failing to review the trust annually. A lot can change in a year, like assets, financial conditions, births, deaths, divorces, marriages, etc. These may require changes to your trust. At the very minimum, Beck, Lenox & Stolzer suggests you review all of your estate planning documents every 3 – 5 years.

Check with your estate planning attorney about a free review. If your attorney is no longer practicing, and you are a Missouri or Illinois resident, contact us to see how we may be able to assist you.

Reference: Dallas Morning News (March 12, 2023) “Owning your trust: Avoid these five common trust mistakes”

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