Our clients use trusts as an asset protection tool and to help their beneficiaries avoid the cost and expense of probate. Trusts transfer legal ownership of assets to a trustee. The trustee is tasked with administering assets in the trust as the trust maker (or grantor) specifies. There may be more strings attached to an asset in a trust than if it were simply left to someone outright, whether in a will or otherwise.
While a trust is a fairly straightforward instrument, simple mistakes can interfere with and invalidate what would otherwise be a simple transfer of property. Let’s take a look at the common mistakes people can make when creating a trust.
You may fail to show intent to create a trust.
This is quite important in the creation of a trust. American courts are very protective of individual property rights. In Minnesota, no specific “magic language” is required to create a trust, but there must be “a definite, unequivocal, explicit declaration of trust,” or circumstances that “show with reasonable certainty or beyond a reasonable doubt that a trust was intended to be created.” (Bond v. Commissioner of Revenue, 691 N.W.2d 831, 837 (Minn. 2005)). Without this, no trust can be considered valid.
You may fail to sufficiently fund the trust.
Trusts can only be created if there is something to put in them. A grantor’s failure to retitle assets into the name of the trust will result in the trust failing. We work with our clients to identify and then properly transfer the their assets into their newly-created trust.
You may fail to instruct beyond “precatory” language.
Precatory language expresses a wish or desire but doesn’t create a legal obligation. Your trust document needs to contain some language that indicates that you’re creating a legally binding obligation such as “I intend to create a valid trust under the laws of Minnesota.”
You may fail to name beneficiaries.
Trusts are created for the benefit of a specific, third-party interest. The grantor must name a person or group of persons as beneficiaries. Viable trusts name beneficiaries and set out the terms for the trust and the duties the trustee owes to the beneficiaries.
You may fail to put the trust in writing.
Where a trust involves a grant of real estate or is created through the execution of a will, the trust must appear in writing to be considered valid. An oral arrangement made with family or close friends is not legally binding.
Overall, you may perceive an even more basic problem: the cost necessary to establish a trust and to create a pour-over will that deposits any remaining assets into the trust at the end of your lifetime. But these expenses should be compared to the costs of probate and paying fees to the estate executor that often equal a significant share of the probate estate.
It’s key to remember, however, that you can overcome any of these problems by setting up a trust with forethought and the professional assistance of the attorneys at Rochford Langins Jarstad.