A living trust has long been an important part of estate planning. Done correctly, a living trust can help protect your heirs from creditors and probate and supply them with any funding you'd like them to have.
However, a living trust might not meet your goals if it isn't arranged properly and periodically reviewed for changes in your circumstances. As you make a living trust part of your estate plan, avoid the following eight most common mistakes.
Common mistakes to avoid
- Leaving out assets. Assets that remain titled in your name will usually go through probate after you die. Aside from certain annuities and qualified retirement funds, make sure you include all appropriate assets in your trust while you are still alive.
- Drafting the living trust on your own. There are many DIY software packages and websites offering living trust forms. These may be cheaper than hiring a professional, but cheaper isn't always better—especially for estates that aren't simple.
- Picking the wrong person to act as successor trustee. Choose a trustee for their ability to manage assets and make decisions, not out of obligation. You might consider co-trustees or naming a trust company or bank to serve in that role.
- Assuming trust assets aren't subject to estate taxation. Remember that assets held in the trust are normally counted when calculating your gross estate for estate tax purposes after you pass away.
- Assuming a trust protects you from creditors. Many living trusts give you full access to the assets while you are alive, which means those assets can still be available to your creditors. A properly drafted trust can, however, offer protection for beneficiaries in some situations.
- Assuming trust assets will not be counted for Medicaid eligibility. Trust assets can be considered during Medicaid eligibility determinations, depending on the trust terms and timing.
- Forgetting to name your charities as beneficiaries. If you want to continue regular donations to a charity, school, or church after you pass away, include them as beneficiaries in your trust.
- Not periodically reviewing your trust. Life changes—births, marriages, divorces, deaths, changes to retirement plans or employment—often make it necessary to update your living trust.
If you want guidance on trustee responsibilities, fiduciary duties, and liability considerations, see Understanding Fiduciary Liability and Estate Planning.
For help with trust administration, regular reviews, and keeping your plan up to date, see Trust Work and Estate Planning.
If you prefer professional review, consider asking a qualified professional to review your documents or talk to an agent about coverage that may help trustees and beneficiaries.
Frequently Asked Questions
Will putting assets in a living trust avoid all estate taxes?
Not necessarily; assets in a living trust are generally included in your gross estate for estate tax calculations, so a trust alone may not avoid estate taxes.
Can a living trust protect my assets from my creditors while I'm alive?
Usually not—if you retain full access to trust assets, those assets can still be reachable by creditors while you are living.
How often should I review my living trust?
Review your trust after major life events (marriage, divorce, births, deaths, significant financial changes) and at least every few years to ensure it still meets your goals.
Should I name a bank or trust company as successor trustee?
That can be a good option if you want professional management and continuity, but weigh fees and the nature of your assets when deciding.