My husband loves breakfast tacos. Our kids all know that we’llbe making a “taco run” at least once a week, and tell theirDad frequently that his “big tummy” would be smaller if he ate fewertacos. His response is that tacos are a necessary part of one’s diet,and that he can stop eating them any time he chooses.
The fact is, tacos are very tempting. They’re easy to eat, readilyavailable, and can be filled with a variety of meats, potatoes, eggs,peppers, and cheeses. They’re not always the best choice, though.Trusts, like tacos, can be a tempting option. But, if a Trust is notestablished properly and used correctly, it may cause, rather thanprevent, a number of legal headaches.
Informed choices in life are always more satisfying than uninformed.I ALWAYS want to know exactly what’s inside my tacos,and I expect the same from business contracts, estate plans, andTrusts.
In order to understand Trusts, it’s helpful to knowsome basic Trust classifications. An intervivos Trust isdesigned to be used during someone’s lifetime, whiletestamentary Trusts only come into existence aftersomeone’s death. Revocable Trusts can go away ifnecessary, while irrevocable Trusts are very difficultto dismantle once they have been created. Self–settledTrusts are created by the person who will benefit fromthem, while Third Party Trusts are created by someoneelse (often a parent or grandparent). There are alsosimple and complex Trusts (an IRS distinction). Anothertype of Trust is court–created (a Trust created bya court for a minor who is awarded money in a lawsuit,for instance).
Trusts are also used for a variety of reasons. Certain trusts ensurethat someone who is unable to handle money responsibly (aminor, for instance) is able to use funds, when assisted by anotherperson (the “Trustee”). These Trusts are often referred to as “managementand support” Trusts.
Other trusts are established to assist the elderly or disabledqualify for governmental assistance. These are called “Public Benefit”or “Supplemental Needs” Trusts.
Trusts are also used to reduce the amount of tax an estate willpay, transfer property easily upon one’s death, or protect an heir’sprivacy. It’s possible to use a Trust to transfer property after deathwithout going through Probate, avoiding records that are open tothe public and eliminating some of the time and expenses associatedwith Probate.
Understanding the different types of Trusts, and the reasons forusing them, then, is essential in creating the correct type of Trust.
Trusts, like tacos, must be FILLED.
The second critical element to Trusts is to ensure that the Trustis operated correctly. No tortilla is ever going to be a taco if it’s leftalone, and no Trust Agreement will accomplish the goals for whichthe Trust was created unless the Trust is funded.
Too often, people create a Trust and then don’t “fund” it (transfertheir property into it) properly. I’ve also seen people createTrusts and then behave in manners which contradict the purposesof the Trust.
If, for instance, a Trust is established for the management andsupport of a minor or disabled person, giving the person moneydirectly (such as failing to plan for a long–lost inheritance) circumventsthe intentions of the Trust. This can be especially complicatedif the Trust has been created to assist a disabled person who’sreceiving governmental benefits.
In the same way, creating a Trust that’s designed to avoid Probatewill only work if property that would otherwise go through Probateis in the Trust at the time of the person’s death. One of my leastfavorite jobs is explaining to families that some or all of their lovedone’s property was not actually in the Trust, and the estate will gothrough Probate after all. (This is usually not an issue ifthe Trust was created by a qualified professional, butit’s arisen several times recently when people removeditems from their Trusts after having transferred theminto the Trust.)
So, funding a Trust, and keeping it fundedproperly, are essential parts of the process.
Trusts, like tacos, aren’t always appropriate.
Finally, Trusts aren’t the only way to managemoney for another person. I can think of quite a few occasionswhere a foil–wrapped taco just wouldn’t work (Ithink that even my husband would agree), and there aresituations where having a Trust that’s not quite correctcan cause far more problems than it’s worth.
I’ve encountered a few Trusts with so few assetsthat the administrative hassles involved are almost ridiculous.This is often the case when an elderly person has slowly given awaymost of his or her possessions and there simply isn’t much to keepmanaging.
A Trust may also not be appropriate when a more extensivesolution, such as a Guardianship, is necessary.
Using a Trust, then, does not solve every possible problem in estateplanning, and can be a hindrance, rather than a help, to anestate. Most importantly, operating with a Trust requires a continualcommitment to manage and maintain the Trust. It is crucial,therefore, that any decision to establish a Trust, especially a LivingTrust, be discussed with a qualified estate planning professional.And, if you’ve been recommended any type of Trust, research itand understand it.
So, if you plan to use a Trust, understand it, operate it, and fundit properly. And remember, just as “a single tortilla does not a tacomake,” a Trust Agreement alone will not guarantee the fulfillmentof your intentions.
