For the majority of people, a Last Will and Testament creates the foundation of a comprehensive estate plan; however, additional estate planning tools and strategies are frequently included in that plan in order to ensure that the plan is a comprehensive estate plan that achieves all of your estate planning goals and objectives. One common addition to even the most basic estate plan is a trust. The right trust can go a long way toward achieving the goals and objectives you have set for your estate plan. If you are contemplating the addition of a trust to your comprehensive estate plan, consider the following tips for setting up a trust.
Before you can start creating your trust you need to know some trust basics. 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 transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. Trusts can be testamentary or living trusts with the former not activating until the death of the Settlor and the latter activating as soon as all the formalities of creation are met. Living trusts are then further sub-divided into revocable and irrevocable living trusts. Testamentary trusts are always revocable because they are not activated until the Settlor’s death, meaning the Settlor can change his/her mind up to that point.
Define Your Goal
First and foremost, you need to have a clearly defined goal for the trust you are creating. Trusts come in a wide variety – testamentary or living, revocable or irrevocable. The type of trust you ultimately create will depend, to a great degree, on the goal you are attempting to achieve. For example, if incapacity planning is your goal you don’t want to create a testamentary trust because it cannot help you while you are alive. Likewise, if asset protection is your goal you don’t want to create a revocable trust because only assets transferred into an irrevocable trust are out of the reach of creditors and other threats to the assets.
Choose Your Trustee Wisely
One of the most common mistakes people make when setting up a trust is to spend too little time and attention to the issue of choosing a Trustee. People frequently name a spouse, parent, adult child, or friend as Trustee without actually considering the individual’s qualifications for the position. The Trustee of your trust is responsible for managing and investing the trust assets and overseeing the administration of the trust itself. As such, the Trustee should ideally have both financial and legal skills and experience. At a bare minimum, your Trustee should have one or the other and the common sense necessary to hire a professional to help if necessary. Your Trustee will also be required to have a firm understanding of the trust terms and the ability to follow those terms, even if he/she doesn’t agree with them. Finally, your Trustee will need to be able to communicate with beneficiaries and may be called upon to mediate disputes among the beneficiaries. As such, your Trustee should not have a conflict of interest nor a personal stake in the outcome of those disputes.
Do Not Go the “DIY” Route
In the electronic age it is tempting to use the DIY route for just about everything; however, doing so with important legal documents, such as a trust agreement, is often a sure fire path to failure. Just because legal forms are plentiful on the internet does not mean they should be relied upon for something as important as a trust agreement. The language in these forms is often incorrect, out of date, or not state specific. These forms frequently have blatant errors or omissions that cause them to be invalidated when they end up in court – as they often do. Finally, you cannot get real legal advice when using a DIY form, meaning you have no way of knowing whether the document you created will even accomplish the goal you set out to accomplish. Instead of taking a chance, consult with an experienced Illinois estate planning attorney when you create your trust.
If you have questions or concerns regarding setting up a trust, contact the experienced Illinois estate planning attorneys at Nash, Nash, Bean & Ford, LLP by calling 309-944-2188 to schedule your appointment today.