One of the most common additions to a comprehensive estate plan is a trust. People incorporate trusts into their estate plan in an effort to accomplish a wide variety of goals, such as incapacity planning, asset protection, and probate avoidance. Because of the ease with which boilerplate, or “DIY,” legal documents can now be found on the internet, people often make the mistake of deciding they can save time and money by just creating their own trust. Unfortunately, what actually happens, in most, cases, is that the time and money saved by creating a trust without the guidance and advice offered by an experienced estate planning attorney is completely negated by the time and money it ultimately costs down the road to correct the mistakes made in the creation of the trust. If you are considering incorporating a trust into your estate plan and are thinking about taking the DIY route, consider the following dangers of creating a trust on your own before you proceed.
Failing to Understand How a Trust Operates
Most people have a rudimentary idea of how a trust operates. At its most basic, a trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, (who may also be referred to as a Maker, Grantor, or Trustor) who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. Beyond the basics, however, the average person doesn’t usually know much about how a trust is administered, the state and federal laws that relate to a trust, nor how a trust operates on a day to day basis. This lack of knowledge can, and often does, create problems when someone tries to create their own trust.
Using the Wrong Type of Trust for Your Goal
Although the concept of a trust has been around for a long time, trust have evolved considerably over the last century. Today, there are numerous specialized trust that accomplish very specific goals. Knowing which type of trust will further your specific goals is crucial to creating a successful trust. First, you need to understand the difference between a testamentary and a living trust in order to decide which one you need to create. Next, you need to understand the difference between a revocable and an irrevocable living trust (a testamentary trust is always revocable up to the death of the Settlor) so you can decide which one will help accomplish your goal. Choosing the wrong type of trust is often worse than not creating a trust in the first place. For example, if asset protection is your goal but you decide to create a revocable living trust you have not only failed to accomplish your goal, but have now wasted time and money that could have been avoided.
Choosing the Wrong Trustee
One of the biggest dangers you face when you create your own trust without the assistance of an experienced attorney is choosing the wrong Trustee. All too often a Settlor simply appoints a spouse, family member, or friend because they think the issue is whether or not the person can be “trusted.” Yes, you need to be able to trust your Trustee; however, a Trustee also has numerous duties and responsibilities, most of which require at least a moderate degree of financial and legal acumen and experience. Because your Trustee is responsible for administering the trust, appointing the wrong Trustee can lead to the failure of your trust altogether.
Play It Safe – Work with an Experienced Estate Planning Attorney
For most people, a trust is intended to help accomplish an important estate planning goal. If that is the case with you, do you really want to entrust the success of that goal by creating a trust using a boilerplate, DIY, legal form you found on the internet? A form that cannot answer questions or give you advice? A form that may, or may not, even incorporate recent changes in the law? The answer to these questions is likely a resounding “NO!”
For more information please download our free report “Living Trusts: Calculating the Benefits.” If you have additional questions about estate planning in the State of North Dakota contact the experienced estate planning attorneys at German Law by calling 701-738-0060 to schedule an appointment.