Although a Last Will and Testament remains the most common estate planning document, many people also choose to include at least one trust agreement in their comprehensive estate plan given the numerous and varied goals that can be furthered using a trust. Unfortunately, people also tend to make critical mistakes during the trust creation process, leading to unintended consequences. To help you avoid these pitfalls, the Los Angeles attorneys at Schomer Estate & Wealth Advisors explain common mistakes you can avoid when creating a trust.
Failing to Clearly Define the Trust Terms
One of the most frequent mistakes is failing to clearly define the terms of the trust. The trust terms, established by the Grantor (creator of the trust), detail how and when assets will be distributed, who the beneficiaries are, and the specific duties of the Trustee. Vague or ambiguous terms can lead to misunderstandings, disputes, and legal battles. To avoid making this mistake, precise and thorough instructions should be included within the trust terms. For example, instead of using generic terms such as “children,” identify each child by name and birthdate and make it clear when stepchildren are included.
Choosing the Wrong Trustee
Choosing the right Trustee is crucial to the success of any trust. Many people default to selecting a family member without considering their qualifications or capacity to manage the trust effectively. The Trustee should be trustworthy, organized, and capable of impartial decision-making. Ideally, your Trustee will also have legal and/or financial experience or skills. Sometimes, a professional Trustee or a trust company is the best option because they can provide the necessary expertise and neutrality.
Failing to Properly Fund the Trust
A trust agreement is ineffective if the trust is not properly funded. The process involved in funding your trust will depend on the type of trust and assets used but ultimately requires you to transfer ownership of assets, such as real estate, bank accounts, and investments, into the trust. Overlooking this crucial step means the assets remain in your name and instead of being governed by the trust they will go through probate before being distributed to the intended beneficiaries. Create a comprehensive checklist of all your assets during the trust creation process and ensure each one is retitled in the name of the trust to avoid making this mistake.
Overlooking Tax Implications
Ignoring the tax implications of your trust can lead to substantial financial burdens for your beneficiaries. Gift and estate taxes (both federal and potentially state), generation-skipping taxes, income taxes, and inheritance taxes are just a few considerations that can impact the value of your estate and the value of the assets ultimately gifted to the trust beneficiaries. To avoid making tax mistakes, work with an experienced estate planning attorney and a tax professional when creating a trust.
Ignoring Potential Conflicts
Anticipating and addressing potential conflicts among beneficiaries as well as between the Trustee and beneficiaries is essential when creating a trust. Sibling rivalries, blended families, and differing financial philosophies can lead to disputes that may undermine your trust’s purpose. A conflict between the Trustee and a beneficiary can impact your Trustee’s ability to successfully administer the trust. To minimize conflict, recognize potential conflicts now and address them when possible by considering an alternative Trustee (if necessary, communicating your intentions clearly and including detailed provisions in the trust terms.
Mistakes Made After Creating a Trust: Forgetting to Review and Revise the Trust
You will go through numerous important changes over the course of your lifetime and your trust agreement should reflect significant life any of those changes. Failing to update your trust agreement to account for events like marriage, divorce, the birth of a child, or the death of a beneficiary or fiduciary can result in your assets being distributed in ways you no longer intend. Make it a practice to review your trust annually and after any major life event.
Do You Need Help to Avoid Making Common Mistakes When Creating a Trust?
For more information, please join us for an upcoming FREE seminar. If you need help creating a trust, contact the experienced Los Angeles estate planning attorneys at Schomer Estate & Wealth Advisors by calling (310) 337-7696 to schedule an appointment.
- Reasons to Incorporate a Living Trust into My California Estate Plan - August 16, 2026
- What You Need to Know about Funding a Trust in California - August 15, 2026
- Estate Planning for Real Estate Owners in California - August 14, 2026
