Pitfalls to avoid in creating a trust

A trust can be a powerful tool as part of a Texas resident's estate plan. Assets such as annuities or life insurance policies can be placed in a trust so they can increase in value while tax deferred or tax free. A person can also place conditions on distributions such as having them go to a beneficiary over a period of time or after reaching certain milestones. The grantor may have a goal for the trust, such as providing for the education of grandchildren, that can be written into the document.

However, after all of this preparation, many grantors then go on to make one mistake, and that is appointing a family member or friend as trustee. This can seem like a logical choice since this is a person who knows the family and will understand the grantor's wishes. However, it is also likely this person will lack the time as well as the financial and legal expertise to administer the trust.

Instead, a grantor can appoint a corporate trustee such as a bank, but a corporate trustee may not have the family knowledge or offer the access that a family would prefer. A corporate directed trust model would allow the corporate trustee to handle the administrative duties associated with the trust while the grantor's financial adviser would deal with investment decisions.

There are several other common trust errors that people should be aware of and avoid. One is creating a trust and failing to fund it. Once a trust is created, it is necessary to make assets part of the trust. Another is failing to review a trust regularly to ensure it still fulfills a person's wishes given any changes in tax law, families or assets.

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