Setting up a trust fund for your kids in North Carolina isn’t that difficult. The biggest problem is that there aren’t many guidelines to help parents who want to do this for their children. There is no single biggest mistake parents make when setting up their kids’ trust funds.
Choosing an estate planning lawyer to help with establishing a trust is also a huge consideration, and you should choose one with the experience you need. But how do you avoid the biggest mistakes when setting up a fund? Let’s take a look.
Big Mistake #1: Lack of Clarity in Trust Fund Purpose
When a loved one passes away, the first critical steps in settling their estate involve appointing an executor or personal representative. This individual, often named in the decedent’s will, plays a pivotal role in overseeing the process. The appointed executor is responsible for conducting an inventory of the decedent’s assets, including real estate, life insurance policies, IRAs, and other owned properties.
Once the executor is in place, the next essential task is to notify creditors and beneficiaries. This step is crucial, as it initiates the legal settling of the estate. If applicable, validity checks on the will also occur during this phase. Generally, this stage sets the foundation for a smoother estate settlement process, though various factors may influence the timeline.
Big Mistake #2: Bad Selection of Trustees
Trustee Responsibilities
Risks And Implications
Big Mistake #3: Neglecting Legal Requirements
- Taxation Oversights: Ignoring the taxation aspect can be financially detrimental. Income and estate tax considerations can significantly impact the trust’s assets. Non-compliance may result in unnecessary tax liabilities, reducing the trust’s effectiveness.
- Legal Documentation: Trust agreements must adhere to specific legal requirements to be valid. Incomplete or improperly structured trust agreements may not hold up in court, jeopardizing your intended benefits for your child.
Big Mistake #4: Ignoring Special Beneficiary Requirements
- Specific Situations: Special beneficiaries require tailored provisions. Minors lack the legal capacity to manage funds, and individuals with disabilities may rely on government assistance programs. Failing to acknowledge these situations can have serious consequences.
- Mistakes: Common errors include neglecting to appoint a guardian for minors or overlooking the impact of trust distributions on government benefits for disabled beneficiaries. Without proper planning, the child’s well-being and financial stability may be at risk.
- Legal Implications: Ignoring the needs of special beneficiaries can result in legal disputes, potential neglect of vulnerable individuals, and the unintentional loss of critical government support, ultimately hampering the intended benefits of the trust.
Big Mistake #5: No Funding Plan for the Trust
- Underfunding the Trust: One significant mistake is not adequately funding the trust. Parents may transfer too few assets, leaving the trust unable to meet its intended purposes, whether it’s supporting education, providing for a child’s future, or maintaining a comfortable lifestyle.
- Irregular Funding: Inconsistency in funding can lead to confusion and complications. Parents should establish a clear plan for how and when assets will be added when they create a trust fund, ensuring a steady and predictable flow of resources.
- Leaving Out Assets: Failure to transfer all relevant assets into the trust is another mistake. This can result in assets remaining subject to probate or not being managed according to the fund’s terms.
- Inadequate Record-Keeping: Proper documentation is essential. Parents should keep records of all assets transferred to the trust, ensuring that there is a clear and comprehensive account of the trust’s holdings.
- Improper Titling: Assets must be titled correctly in the name of the trust to be included. Neglecting this step can lead to confusion and disputes over asset ownership.
How To Avoid These Big Mistakes
At Cline Donaldson PLLC, we understand trusts, and we’re here for you to consult about your estate planning. Contact us today to plan for your family’s future.
About the Author
Scott Donaldson
As one of the founders of Cline Donaldson PLLC, Scott Donaldson leverages his background in law enforcement to provide exceptional representation across core practice areas, including personal injury law and estate planning. Before founding his Wilmington-based firm in 2023, Mr. Donaldson honed his understanding of the law as a Lieutenant in the esteemed New York City Sheriff’s Office.
He subsequently graduated cum laude from Campbell University’s Norman Adrian Wiggins School of Law, earning the Law School Book Award for demonstrating exceptional mastery of complex legal subjects. With an extensive legal background, Mr. Donaldson brings authoritative experience and insight when navigating each client case. He remains dedicated to upholding the highest legal standards and achieving optimal outcomes for all he represents.
