Trusts can be used to protect your hard earned assets, to help your beneficiaries avoid the cost and expense of probate, as well as transfer legal ownership of assets to a trustee. A property is deeded in the name of the trust and the trustee is responsible for administering it as the grantor specifies. However, there could be more strings attached to an asset in a trust than if it were left to someone in a will.
While a trust is fairly straightforward, simple mistakes can invalidate your transfer of property.
Below we’ll discuss the common mistakes people can make when creating a trust.
- You fail to show intent to create a trust. This is vital. American courts are extremely protective of individual property rights. The intent standard for a trust conveyance is similar to the property being gifted: The individual granting the property must show that making such a grant was intentional. Without this, no trust can be considered valid.
2. You fail to sufficiently fund the trust. A trust cannot be created unless the property changes hands. Any failure to deliver the property to an adequate item or sum in trust will result in a trust failure. Funding problems could be due to the granting party failing to make delivery or due to placing in trust some future property interest that can’t be tied to any property in a way that proves its viability.
3. You fail to instruct beyond precatory language. Precatory language expresses your desire but doesn't create a legal obligation. Your trust document must indicate that you are creating a legally binding obligation.
4. You fail to name beneficiaries. A person or group of people must be named as beneficiaries. Viable trusts name beneficiaries and set out any terms for the trust as well as the duties the trustee owes to the beneficiaries.
5. You fail to put the trust in writing. When a trust involves a grant of real estate or a trust is created through the execution of a will, it must appear in writing to be considered valid. A "verbal arrangement" made with a family member or close friend will never see the inside of a courtroom.
Of course, there are expenses to set-up the trust, but these expenses should be compared to the costs of probate as well as any fees paid to the estate executor that often equal a large portion of the probate estate. The expenses may include:
- The cost to establish the trust and to create a pour-over Will that deposits all remaining assets into the trust at the time of death.
- When administering the trust, the trustee might have to retitle documents or add new filings in order to transfer ownership to the trust.
Another potential problem involves interpersonal issues that could arise between the beneficiaries and the trustee if the beneficiaries resent the trustee's role or believe that they are not acting in their best interests.
However, it's key to remember that you can overcome any of these problems by setting up a trust with forethought and professional assistance. Call Chuck Bendig for your free consultation.
