Top 5 Mistakes People Make With Their Connecticut Living Trusts (And How to Avoid Them)
Top 5 Mistakes People Make With Their Connecticut Living Trusts (And How to Avoid Them)
Living trusts are powerful estate planning tools that can help you avoid probate, maintain privacy, and ensure your assets are distributed according to your wishes. However, many people make critical mistakes when setting up and managing their living trusts that can undermine these benefits entirely.
Whether you're considering creating a living trust or already have one in place, understanding these common pitfalls can save your beneficiaries time, money, and stress down the road. Here are the five most frequent living trust mistakes we see—and practical steps to avoid them.
1. Failing to Fund the Trust Properly
The most common and costly mistake people make with living trusts is creating the trust document but never actually transferring their assets into it. A living trust is essentially an empty container until you "fund" it by retitling your assets in the trust's name.
What This Looks Like:
Your home deed still shows your personal name instead of the trust
Bank accounts remain in your individual name
Investment accounts haven't been transferred to the trust
Personal property hasn't been assigned to the trust
Why It's Problematic:
An unfunded trust defeats the primary purpose of avoiding probate. Assets not held in the trust's name will still go through the probate process, creating the exact delays and costs you were trying to avoid.
How to Fix It:
Transfer real estate by recording a new deed with the trust as the owner
Contact banks and investment companies to retitle accounts
Update beneficiary designations on retirement accounts and life insurance
Create an assignment of personal property document
Review and update asset titles annually
2. Not Updating the Trust After Major Life Changes
Life doesn't stand still, and neither should your living trust. Many people create their trust and then forget about it, failing to update it when circumstances change significantly.
Common Life Changes That Require Trust Updates:
Marriage or divorce
Birth or adoption of children or grandchildren
Death of beneficiaries or trustees
Significant changes in financial circumstances
Moving to a different state
Changes in family relationships
The Consequences:
An outdated trust may not reflect your current wishes, could leave new family members unprotected, or might even become invalid if you've moved to a state with different trust laws.
Best Practices:
Review your trust every 3-5 years or after major life events
Work with an estate planning attorney for significant updates
Keep a written record of changes you want to make
Communicate changes to your successor trustees
3. Choosing the Wrong Successor Trustee
Your successor trustee will manage your trust when you become incapacitated or pass away. This person will have significant responsibilities and authority over your assets, making this one of the most important decisions in your estate plan.
Common Mistakes in Trustee Selection:
Choosing someone based solely on family relationship without considering their capabilities
Selecting someone who lives far away or is in poor health
Failing to name backup trustees
Not discussing the role with your chosen trustee beforehand
Overlooking potential conflicts between co-trustees
What Makes a Good Successor Trustee:
Financial responsibility and basic money management skills
Trustworthiness and integrity
Ability to remain impartial among beneficiaries
Time and willingness to handle the responsibilities
Good communication skills
Proximity to beneficiaries (when possible)
Solutions:
Have honest conversations with potential trustees about their willingness to serve
Consider naming a corporate trustee for complex estates
Provide clear instructions and contact information for professionals
Name multiple successor trustees in order of preference
4. Inadequate Record Keeping and Documentation
Poor documentation can create confusion, delays, and conflicts among beneficiaries. Many people focus on creating the trust but neglect the ongoing administrative requirements.
Documentation Problems We See:
No clear records of trust assets and their values
Missing or unclear instructions for specific bequests
Failure to maintain receipts and financial records
No contact information for important advisors
Unclear or outdated asset inventories
Why Good Records Matter:
Helps trustees understand and locate all trust assets
Provides clear evidence of your intentions
Simplifies the administration process
Reduces potential disputes among beneficiaries
Ensures compliance with legal requirements
Creating Better Documentation:
Maintain a current inventory of all trust assets
Keep detailed records of all trust transactions
Store important documents in a secure, accessible location
Provide clear instructions for digital assets and accounts
Create a contact list of important advisors and service providers
5. Neglecting Tax Implications and Reporting Requirements
Living trusts have specific tax implications that many people overlook. While revocable living trusts are generally tax-neutral during your lifetime, there are still important considerations and requirements.
Common Tax Mistakes:
Confusion about tax ID numbers and reporting requirements
Failure to understand state tax implications
Not planning for potential estate tax issues
Misunderstanding income tax treatment
Inadequate planning for tax-deferred retirement accounts
Key Tax Considerations:
Revocable living trusts typically use your Social Security number for tax purposes
Income from trust assets is reported on your personal tax return
Different states have varying tax rules for trusts
Large estates may face federal or state estate taxes
Special rules apply to retirement accounts and IRAs
Professional Guidance:
Consult with a tax professional familiar with trust taxation
Understand your state's specific trust tax laws
Plan for potential estate tax implications
Keep detailed records of all trust income and expenses
Review tax strategies regularly as laws change
Protecting Your Legacy: Next Steps
Creating a living trust is an important step in protecting your assets and providing for your loved ones, but it's not a "set it and forget it" solution. Regular maintenance, proper funding, and ongoing attention are essential to ensure your trust accomplishes your goals.
Action Items for Trust Owners:
Audit Your Trust Funding: Review all your assets to ensure they're properly titled in the trust's name
Schedule Regular Reviews: Plan to review your trust every few years or after major life changes
Communicate with Your Trustees: Make sure your chosen trustees understand their role and have access to necessary information
Organize Your Records: Create a comprehensive file with all trust documents, asset inventories, and important contacts
Seek Professional Guidance: Work with qualified estate planning attorneys and tax professionals who understand trust law
When to Seek Help
A well-maintained living trust can provide peace of mind and significant benefits for your family. But, it’s far too easy to miss out on these benefits with a poorly executed trust. This isn’t an area you want to DIY - the cost of professional guidance is minimal compared to the potential problems these mistakes can create for your beneficiaries. Working with an experienced attorney to create an effective - and funded! - trust is crucial to ensure your estate plan works exactly as intended when your loved ones need it most.
The Law Office of Elizabeth Roache is located in Wilton, Ct. We regularly help clients throughout Fairfield and Westchester counties to create effective, durable estate plans with revocable living trusts at the core. Contact us today to get started!
