8 Common Estate Planning Mistakes When Establishing a Revocable Trust

Revocable living trusts are powerful tools in estate planning, offering a way to avoid opening a succession, maintain privacy, and streamline the distribution of assets. But even the best intentions can be undermined by common and costly mistakes. Here are eight pitfalls to avoid when creating and managing a revocable living trust:

1. Failing to Fund the Trust

Creating a trust is just the beginning. Many people mistakenly assume that signing the trust document is enough. In reality, the trust must be funded — meaning assets like real estate, bank accounts, and investment portfolios must be re-titled in the name of the trust. If assets are not properly transferred, they may still go through succession, defeating the very purpose of the trust.

2. Having a Poorly Written Trust

Not all trusts are created equal. A generic or poorly drafted trust can lead to ambiguity, family disputes, and even court involvement. It is essential to work with an experienced estate planning attorney who can customize the trust to reflect your wishes, anticipate potential issues, and include necessary legal protections.

3. Believing the Trust Protects Against Nursing Home Costs

A common misconception is that placing assets in a revocable living trust shields them from long-term care costs or Medicaid eligibility calculations. In truth, because the grantor retains control over the assets, they are still counted for Medicaid purposes. Asset protection strategies for long-term care require different tools, such as irrevocable trusts or Medicaid-compliant plans.

4. Assuming the Trust Protects Against Lawsuits or Creditors

Revocable living trusts do not offer liability protection. Since the trust is revocable, the assets are still considered part of the grantor's estate and are accessible to creditors. If asset protection is a priority, consult your attorney about irrevocable trust options or other protective strategies.   

5. Overlooking Ancillary Documents

Your trust doesn't operate in a vacuum. Supporting documents are essential to ensure your estate plan functions smoothly. These include:

• A Durable Power of Attorney to handle financial matters if you're incapacitated.

• A Health Care Power of Attorney and Living Will for medical decisions.

• A Pour-Over Will to catch any assets not transferred into the trust.

• Clear Successor Trustee provisions to manage the trust after your death or incapacity.

6. Ignoring Beneficiary Designations on Non-Trust Assets

Assets like IRAs, life insurance policies, and annuities pass based on their beneficiary designations, not your trust. Failing to coordinate these designations with your trust and overall estate plan can lead to unintended distributions and tax consequences. Always review and align beneficiary forms with your estate plan.

7. Naming the Trust as IRA Beneficiary Unnecessarily

While there are strategic reasons to name a trust as the beneficiary of a retirement account, doing so without understanding the implications can create tax headaches. Trusts can accelerate required distributions and limit beneficiary flexibility. Consult a qualified attorney or financial advisor before naming your trust as an IRA beneficiary.

8. Neglecting to Update the Trust

Life changes—such as marriage, divorce, births, deaths, or significant financial shifts—require updates to your trust. A stale trust may no longer reflect your wishes or comply with current laws. Schedule regular reviews with your estate planning attorney to keep your documents current and effective.

Final Thoughts

A revocable living trust can be a cornerstone of your estate plan, but it must be handled thoughtfully and maintained over time. Avoiding these common mistakes can help ensure your assets are protected and your wishes are honored. If you have questions about your trust or estate plan, the experienced team at Business Law Group is here to help.