Legal Guide

4 Common Mistakes People Make When Creating a Trust

When you make a mistake with a legal document, you may be creating an opening for others to challenge it. It may result in the legal document not providing all the protection you wanted. Or your mistakes may invalidate the document altogether. This is problematic in a contract, but it is disastrous in documents like a trust. Here are the four most common mistakes people make when creating a trust.

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Creating the Wrong Kind of Trust

There are several types of trusts, and you must choose the right type of trust to get the right type of benefits. A special needs trust is specifically for supporting disabled loved ones, and this is different from the type of trust you should use to protect assets when a loved one enters a nursing home. A spendthrift trust protects an inheritance from someone who would waste the money. There are other trusts for protecting your wealth after you pass for the benefit of any and all heirs.

Choosing the Wrong Trustee

The trustee is a fiduciary, someone you trust to manage the money on your behalf of that or your beneficiaries. If you choose the wrong trustee, they may waste the money, not spend it appropriately, or put the assets at risk with bad investment decisions. Choose someone you truly trust to manage the trust assets. It must be someone who will both manage the money properly and follow your wishes. Fail to do this and your heirs may end up fighting each other or suing the trustee.

Not Following the Laws Regarding Trust Formation

A trust is only legally valid and certain to work the way you want if it is created in accordance with state laws. For example, trust laws vary from state to state. If you have moved from one state to another, your old trust may be invalid. Using legal forms from another state will probably result in an invalid trust, too. Work with a Colorado estate lawyers who understand the Colorado Uniform Trust Code. Your attorney or estate planner must understand the intricacies of a Colorado trust law to select the right type of trust for your situation and desired outcome.

Failing to Fund the Trust Properly

A trust is meaningless if you set it up but fail to fund it; unless you’ve made other arrangements like putting your life insurance proceeds in the trust. In general, you have to trust your property to the trust for it to pass on to the heirs without being taxed. These assets may be financial or physical.

Note that there are tax implications when transferring assets into a trust. You may need to seek legal advice when changing the ownership of property like a house or car to the trust. For example, you may need to go through additional steps to transfer ownership of a house into the trust if there is still a mortgage on it. And you may not want to transfer ownership of a car to the trust, especially if you’re still making the payments on it.


Mistakes made when setting up or managing a trust can cost you or your heirs dearly. Avoid the most common mistakes and seek legal advice when necessary so that you don’t go to all this effort for nothing.

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