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4 mistakes to avoid when creating a trust in Colorado

Trusts can be a critical part of an estate plan. People create trusts for various reasons, including probate avoidance, shielding assets, protecting young or disabled beneficiaries, reducing estate taxes.

Whatever reasons you may have for wanting to include a trust in your estate plan, you must be sure you take the proper steps to set up and maintain the trust. Below are four mistakes in particular that you should avoid when creating your trust.

  1. Setting up the wrong type of trust - Different kinds of trusts serve different purposes. Some protect property; others protect people. For instance, if you have a child with special needs and want to ensure he or she continues to receive necessary government benefits, failing to set up a special needs trust could be a serious oversight.
  2. Failing to fund a trust - If you set up a revocable living trust, you must retitle property and transfer assets into it for it to be effective. Too many people think that creating a trust is all they need to do. However, failing to transfer property - which is funding the trust - means they may still have to go through probate.
  3. Appointing the wrong trustee - No matter how much work you put into creating your trust, selecting the wrong trustee could jeopardize your wishes. A trustee should be able to make decisions responsibly and navigate complicated family dynamics. You might choose a friend, family member or professional, depending on your goals. Appointing someone who does not know what they are doing or does not care could make the administration process contentious and upsetting.
  4. Neglecting the legal requirements - Colorado has mandatory rules for trusts in this state. One rule is that a trust must meet minimum requirements, which includes creation by a settlor with capacity and intention, definite beneficiaries and duties for the trustee. Further, the sole trustee and beneficiary cannot be the same person.

These missteps could leave your loved ones and your assets vulnerable to unintended consequences. As such, taking care to avoid them can be essential.

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