Most people incorporate a variety of tools and strategies into their estate plan to ensure that they achieve all their estate planning goals. A trust is among the most common of those tools. Given the complexity of a trust agreement, you should always work with an experienced estate planning attorney when creating a trust to avoid making common mistakes. To help you better understand, the Essex Junction trust attorneys at Unsworth LaPlante, PLLC discuss trust creation mistakes you should try to avoid making.
What Is a Trust?
A trust is a legal relationship that allows property to be held by one party for the benefit of another party or parties. A trust is created by a Settlor (also referred to as a Maker, Trustor, or Grantor), who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. All trusts can be categorized as a testamentary or living trust. A testamentary trust is one that does not take effect until the death of the Settlor and is usually triggered by a provision in the Settlor’s Last Will and Testament. A living trust, formally known as a “inter-vivos” trust, is a trust that takes effect during the lifetime of the Settlor. Living trusts can be further sub-divided into revocable and irrevocable living trusts.
Trust Creation Mistakes
Making a mistake during the creation (or administration) of a trust can result in the trust failing to accomplish its intended goal(s). This is one of the many reasons why you should always work with an experienced trust attorney when creating a trust agreement. Nevertheless, it helps to know some common trust mistakes to make sure you avoid making them, such as:
- Creating the wrong type of trust for your trust purpose. Today, there is a specialized trust that can be used to further almost any estate planning purpose. Selecting the right type of trust and even the right specialized trust is crucial. For example, if asset protection is your goal, you must use an irrevocable living trust because assets held in any other type of trust remain accessible to creditors and other threats to those assets. Conversely, if incapacity planning is your goal, a revocable living trust is your best choice.
- Using conflicting or unclear trust terms. In most cases, someone other than you will be charged with administering the trust using the trust terms you create. If those terms are vague or conflicting, your Trustee will have problems administering the trust and may end up in court asking a judge to interpret the terms. Court intervention is costly which is why you need to make sure your trust terms are unambiguous and harmonious.
- Appointing the wrong person as Trustee. A common mistake is appointing a spouse or close friend without giving much thought to whether he/she is really the best person for the job. Choose someone with the legal and/or financial skills necessary to properly administer the trust.
- Failing to state a clear trust purpose. Your Trustee is legally required to make all discretionary decisions with your trust purpose in mind. He/she is also required to administer the trust with the goal of furthering your trust purpose. Moreover, if a court ever must make decisions that impact the trust, a judge may need to know the overarching trust purpose. Deciding on a clear and concise trust purpose, therefore, is critical.
- Underfunding, or failing to fund, the trust. If all goes well, your trust will grow as the principal is invested; however, you should always ensure that there are sufficient assets in the trust from the beginning to accomplish your stated goals.
Contact Essex Junction Trust Attorneys
For more information, please attend one of our upcoming FREE webinars. If you have questions or concerns about creating a trust, contact the experienced Essex Junction trust attorneys at Unsworth LaPlante, PLLC by calling 802-879-7133 to schedule your appointment today.