• Laurel Carbone Kern

When is a Trust not a Trust?

A large part of our practice, as with any estate planning attorney, involves restating and amending planning that clients have done in the past. Since that time, their life has changed or the law has changed in some significant way that requires updates. This gives us the chance to read and review all sorts of trusts, and we need to tell you something very important:

Not all revocable trusts are created equal.

Many clients - and attorneys, it would seem - believe that any document called a "trust" essentially does the same thing. But there are, potentially, important differences between one revocable trust and another.

01/ A Trust Should Integrate Your Values, Not Just Distribute Your Assets

We see trusts that have clearly defined provisions for WHO should receive assets, which is good. But when we start to ask questions about HOW those assets should be distributed, it becomes clear that the client's unique values, priorities, and beliefs were never considered, talked about, or, at least, never incorporated into the trust.

Estate planning is about so much more than just "who gets your stuff." Simply identifying your beneficiaries is sort of like building a house and stopping at the studs. The studs are crucial, no doubt, but the house is hardly finished at that point.

02/ A Trust Should Be Properly Funded

We see trusts that are drafted with care and attention to detail, trusts that have considered a client's values, but have never been funded. That is, no assets have ever been titled in the name of the trust. The trust doesn't own anything. The attorney that drafted the trust didn't work with the clients to ensure that the trust was appropriately designated as owner or beneficiary.

The consequence is this: the trust can't control what it doesn't own. If the trust isn't properly funded, all of that careful planning, all of the money that was spent has only gained you some expensive sheets of paper and left you with assets that will still require guardianship, probate, or may not avoid otherwise preventable family tensions.

It's critical, when establishing a trust, to work with an attorney who will assist you in identifying your assets and properly funding your trust.

03/ A Trust Should Be Clearly Written

This should go without saying. But, sadly, it doesn't. We've seen trusts that are ambiguously, confusingly, and sometimes even impossibly drafted. Here's what we mean:

A) Your trust doesn't clearly define common, but critical, terms that could mean one of several things.

B) Your trust doesn't specify how trustees are intended to execute their powers, especially when there are co-trustees. Are they both required to act? May they act independently? When? Why? How?

C) Your trust doesn't have any contingency plans for filling vacancies, alternate beneficiaries, or amending the trust during times when it is irrevocable. Or, the contingency plans that are there are unclear or aren't consistent with your wishes.

D) Your trust just doesn't make any sense. (These are our favorites.) It references sections of the trust that don't actually exist anywhere in the trust, or it names beneficiaries that are impossible to identify, or it has mutually exclusive distributions of assets, or... The point is, it won't work because it can't work.

There's no downside to reviewing your trust from time to time.

Schedule some time with one of our attorneys to do a free trust audit. THIS IS NOT A TRICK. We regularly meet with people whose existing plans are in great shape, requiring no additional work. For those people, the audit gives them additional peace of mind at no cost. But others discover some serious problem areas, and we come up with comprehensive strategies together.

If you want to know more, we would love to talk with you about it. Best part, the conversation about how it could benefit you doesn't cost anything. Contact us at (425) 292-3934 or to set up a free consultation, either in person, video chat, or phone call.

Disclaimer: Reading this blog post does not create an attorney-client relationship, and it is not formal legal advice. This is for information purposes only. Your best bet, always, is to speak with an attorney about your questions, assets, concerns, and needs.

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