Although your initial estate plan may consist of nothing more than a Last Will and Testament, that simplistic plan will undoubtedly grow over the course of your life to meet your changing needs. One of the estate planning tools you may choose to include in your expanded estate plan is a trust. As the Settlor (creator) of the trust you will create the trust terms. A Living Trust Attorney at Collins Law Group offer some tips to help you create those trust terms.
Trust Basics
A trust is a fiduciary arrangement that allows a third party, referred to as a Trustee, to hold assets on behalf of a beneficiary or beneficiaries. Trusts can be arranged in many ways and can specify exactly how and when the assets pass to the beneficiaries. All trusts can be broadly divided into two categories – testamentary or living (inter vivos) trusts. Testamentary trusts are typically activated by a provision in the Settlor’s Last Will and Testament and, therefore, do not become active during the lifetime of the Settlor. Conversely, a living trust activates during the Settlor’s lifetime. Living trusts can be further sub-divided into revocable and irrevocable living trusts. If the trust is a revocable living trust, as the name implies, the Settlor may modify or terminate the trust at any time. An irrevocable living trust, however, cannot be modified or revoked by the Settlor at any time nor for any reason unless a court grants the right to revoke or modify the trust.
The type of trust you decide to incorporate into your estate plan will depend on what estate planning goal(s) you are trying to achieve with the trust. Regardless of the type of trust you create, however, as the Settlor of the trust you will create the trust terms. The Trustee is legally obligated to follow those terms unless a term is illegal, impossible, or unconscionable.
Trust Term Tips
The terms you create for your trust will be used by the Trustee to administer your trust. If you are no longer alive, or are incapacitated, at the time the trust is administered, those terms are the only guidance the Trustee has to help discern your intentions. While you should always consult with your estate planning attorney when creating your trust terms, as the Settlor you will likely provide the rough draft of your trust terms. With that in mind, some things to consider when creating your trust terms include:
- Be clear and concise. One of the most common reasons for using a trust to distribute assets is that a trust avoids probate, meaning there is no need for judicial oversight. If, however, the trust agreement includes vague terms, it may be necessary to ask a court to interpret the meaning of the terms – which is precisely what you were trying to avoid by using a trust in the first place.
- Include a trust purpose. The purpose of the trust may be clear and obvious to you; however, you are not the person who must administer the trust nor the judge who may need to rule on questions surrounding the trust. With that in mind, take the time to include a clearly stated purpose for your trust in the trust terms.
- Remember future beneficiaries. It can be easy to focus too much on current beneficiaries and forget the future beneficiaries, if there are any. Whether your trust has an entire class of future beneficiaries, as is the case in a charitable lead/remainder trust for example, or your trust simply includes beneficiaries who have yet to be born, make sure they are taken into consideration when you are creating your terms.
- Anticipate the need for alternatives. Life can be very unpredictable. The administration of your trust may be as unpredictable, calling for you to consider the need for alternatives within the trust agreement. The most important of those is usually a successor Trustee in case your original Trustee cannot serve or does not wish to serve. Not anticipating the need for a successor Trustee is a common reason for a trust agreement to wind up in court.
- Provide identification when possible. Ambiguous beneficiaries and/or assets is a nightmare for a Trustee. Instead of saying “my son,” provide a full name, date of birth, and current address. The same applies to assets referred to within the trust terms.
- Consider the need for discretion. It is not always wise to give a Trustee a considerable amount of discretion; however, when a Trustee does have discretion a number of potential problems can be resolved without the need to involve a court.
Contact Los Angeles Revocable Living Trust Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions about creating terms in a trust, consult with one of our Estate Planning Attorneys. Contact the Collins Law Firm by calling (310) 677-9787 and online at collinslawgroup.com to register for one of our FREE estate planning workshops.
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