Trusts are a powerful tool in estate planning, offering privacy, control, and protection for your assets. But how do you know if your trust is working as it should? Setting up a trust is only the first step—ensuring that it functions as intended is equally important. Whether you have a revocable living trust, an irrevocable trust, or a special needs trust, there are key factors to consider. Let’s explore seven ways to determine if your trust is on track and meeting your goals.
A common mistake is setting up a trust but failing to fund it correctly. To be effective, a trust needs to own the assets that are intended to be protected or distributed. If you’ve forgotten to transfer property, bank accounts, or investments into your trust, your estate plan may not work as you intended.
How to check: Review your assets and confirm that each item is properly titled in the name of your trust. You might need to change deeds, update beneficiary designations, or retitle accounts.
The person you appoint as trustee plays a critical role in managing and distributing assets according to your wishes. For a trust to work smoothly, your trustee must be actively involved, organized, and well-informed about their duties.
How to check: Make sure your trustee knows what their responsibilities are and has access to the necessary documents. It’s also a good idea to periodically review the trustee's ability to carry out their duties.
Your life changes, and so should your trust. Whether it’s a marriage, divorce, birth of children, or major financial changes, your trust should reflect these shifts. Failing to update your trust can cause it to become outdated and ineffective.
How to check: Review your trust every few years, especially after major life events. Ensure that the beneficiaries and instructions still align with your wishes.
An important benefit of certain trusts, like irrevocable trusts, is that they can help reduce estate taxes. If your trust isn’t structured properly for tax efficiency, you might be missing out on potential savings or facing unintended tax consequences.
How to check: Consult a tax advisor or estate planning attorney to ensure that your trust is designed to minimize taxes and optimize your financial situation. This is especially important if your estate is likely to surpass the federal estate tax exemption limit.
Some trusts, such as irrevocable trusts, provide asset protection by making it harder for creditors to claim your assets. If you're concerned about lawsuits or creditors, your trust should be designed to shield assets from potential claims.
How to check: Review the terms of your trust to see if it includes provisions for asset protection. This is particularly critical if you live in a high-risk profession or have substantial liabilities.
Beyond just financial protection, trusts can serve as vehicles for transmitting your values, wishes, and intentions. Whether it’s supporting charitable causes, ensuring the well-being of heirs, or planning for long-term healthcare needs, your trust should align with your values.
How to check: Consider if your trust aligns with your long-term goals, like preserving wealth for future generations or ensuring that assets are used for specific purposes. If it doesn’t, a revocation or amendment might be necessary.
One of the main reasons people establish trusts is to avoid probate—the lengthy and public court process that follows a person’s death. A well-structured trust can allow your estate to bypass this process, making it easier and faster for beneficiaries to access their inheritance.
How to check: Ensure that your trust is properly funded and that all your assets are in the trust’s name. Probate can still be triggered if assets are not properly handled, even if you have a trust in place.
Your trust should be a dynamic, living document that works in your favor, providing peace of mind, financial security, and ensuring that your wishes are carried out. If any of the points above are a concern for you, it may be time to review your trust and make adjustments where needed. Regular check-ins with your estate planning attorney can ensure that your trust remains effective, efficient, and aligned with your goals. After all, a well-set-up trust isn’t just about setting it and forgetting it—it's about proactive planning to protect what matters most.
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