For many people, a trust can be a helpful addition to their estate plan. Unfortunately, there are many misconceptions and misunderstandings about trusts that can lead to people not using them wisely or not using them at all. This could be a big error.
You don’t want to pass up the opportunity to implement all of the estate planning tools you need to leave your legacy. To ensure that doesn’t happen to you, watch out for these five trust mistakes.
1. Not creating a trust when you need one
Far too many people pass up on making a trust because they don’t think they need one. Others don’t make a trust because they assume it is too complicated or it is only for wealthy people.
The reality is that trusts can help a wide variety of people from all walks of life. Anyone with a disabled loved one, for example, might benefit from creating a special needs trust. This enables you to provide for that person with a disability without causing them to lose access to means-tested benefits like Medicaid or Supplemental Security Income (SSI) from the Social Security Administration.
Trusts can also help you keep your assets safe if you must enter a nursing home. Medicare doesn’t pay for custodial care or routine help with activities of daily living, which is why most people enter nursing homes.
Genworth’s Cost of Care Survey revealed that as many as 70% of people 65 and over will need nursing home care, which comes at an average cost of $9,733 monthly for a private room. In California, it is even higher. Medi-Cal will pay for this, but only if you meet the financial qualifications. A trust can include provisions that may make it easer to qualify.
These are just a few of the many reasons why you might need trust even if you don’t know it. Trusts have powerful benefits and you shouldn’t pass them up if a trust belongs in your estate plan.
2. Not creating the right kind of trust
You can’t just create “a trust” if you decide to include this tool in your estate plan. That’s because there are many different kinds of trusts.
A special needs trust is different from a revocable living trust, which you use to pass assets outside of probate. Both are different from irrevocable living trusts, which can provide more protection for assets in the event you need nursing home care or want to avoid estate taxes.
If you make the wrong kind of trust, you and your loved ones may not find out until after you have become incapacitated or passed away, and the trust is supposed to start providing benefits. You can’t correct the issues at that point in time.
This is why it’s so important to avoid this mistake and make the right type of trust from the start.
3. Not funding your trust
Making a trust is only the start. If you want your property to benefit from the protections your trust can offer, you have to fund it or transfer property into it. You can do that only by transferring the titles of properties or changing the beneficiaries on the accounts that you own.
You need to do this before something happens to you because any property not held in the trust will not receive the benefits it offers.
4. Not choosing the right trustee
One big reason to make a trust is so you can select an appropriate and responsible party to manage trust assets. Depending on the kind of trust you made, this person could be in charge of managing the assets for a disabled loved one, taking over managing your assets if you become incapacitated, and facilitating the transfer of your assets through the trust administration process after your death.
Trustees have a fiduciary duty, or the highest duty the law imposes, but holding them accountable when things go wrong can still be stressful or difficult. You want to choose the right person from the start so there are no issues.
5. Not keeping your beneficiaries updated regularly
Finally, your trust exists to provide for beneficiaries so you don’t want to make the mistake of leaving anyone out who should be a beneficiary. If you have life changes, such as adding a new person to your household, you must remember to update your beneficiaries so they get the benefits the trust assets offer.
The good news is that you can avoid these common mistakes with help from the Northern California Center for Estate Planning and Elder Law. Call us today at (916) 437-3500 to learn more about how we can help.
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