Wills and trusts are the core documents in an estate plan. Most people have a general understanding of the nature of a Will. Trusts are more complicated than Wills for a number of reasons and often are somewhat confusing to individuals creating an estate plan.
If you think your estate plan could benefit from including a trust, the first step to take is talking with an experienced estate planning attorney. Just as a Do-It-Yourself (or DIY) approach for making a Will creates a substantial risk that your Will may be invalid or may not accomplish what you think it does, attempting to create a trust without the benefit of legal counsel can have catastrophic results for your estate and your family.
A trust is a legal arrangement in which a designated trustee manages property and assets placed in the trust and makes distributions to named beneficiaries of the trust. The grantor of a trust is the person who creates the trust.
The first step in establishing a trust is preparation and execution of a trust instrument, which a legal document establishing the trust. The instrument names the trustee (and often a successor trustee) and beneficiaries of the trust. It also establishes the terms, conditions, and rules for management and distribution of the trust assets and property.
Trusts can serve many different purposes. In an estate plan, a trust accomplishes specific goals and needs of the individual creating the plan and trust. An attorney drafts a trust instrument for an estate plan specifically according to the wishes of the person creating the estate plan.
A trust may be revocable or irrevocable. A revocable trust is one that the grantor can change or terminate. Generally, an irrevocable trust cannot be revised or ended after it goes into effect, except by a court order (which is available only in limited circumstances). This distinction is one extremely critical reason why no one should ever attempt to create a trust without a lawyer. If someone creates an irrevocable trust when the intention was to create a revocable trust, significant legal and financial problems may result.
Establishing a trust with a trust instrument is only the first step in creating a trust. Funding the trust is a necessary second step.
A testamentary trust takes effect on the grantor’s death. Provisions in the grantor’s Will fund the trust. In contrast, a living trust takes effect during the grantor’s lifetime.
One way of funding a living trust is for a grantor to set up a trust account with a bank or other financial institution and then transfer funds directly into the trust account. Another way of funding a living trust is for a grantor to transfer the title to real estate, such as a home, into the name of the trust. Trust assets may also include retirement accounts, life insurance proceeds, and other types of financial assets.
Transferring some assets into a trust requires changing the title to the property or the beneficiary designation on an account or policy. In all such cases, the changes must be accomplished correctly in order to be effective.
When an individual wishes to create a trust, establishing the trust involves both creating the trust instrument and funding the trust. Those two steps require legal counsel from a lawyer experienced in trusts, to ensure that the trust complies with applicable state and federal laws and the grantor’s goals and wishes.
The attorney’s role begins even before it is time to create the trust instrument. Your lawyer’s first responsibility is to talk with you in detail about your financial and family circumstances, to determine whether a trust is the appropriate way to accomplish your goals. If it is, your lawyer then explains how a trust works, to ensure that you fully understand the implications of creating the trust.
The trust instrument that your attorney drafts for you reflects all of your special goals, as well as your family and financial situation. Your lawyer makes certain that you select a responsible trustee and name a successor trustee if it is appropriate.
After you execute the trust instrument, your attorney helps you fund your trust. That may involve funding a testamentary trust through your Will. If you create a living trust, your attorney assists you with identifying and transferring assets into the trust after you execute the trust instrument and establish the trust account.
After your trust is set up, your attorney remains available to assist with transferring new assets into the trust or addressing necessary revisions, if a change in your circumstances or family situation requires updating your estate plan or your trust.
The discussion above reveals just how complicated it is to establish a trust. Even a small mistake or misstep anywhere in the process is capable of creating significant legal and financial problems for you or your family. In addition, complex Michigan laws govern trusts and trustees. Compliance with all those statutory provisions requires counsel from an attorney knowledgeable about those laws.
Before you sign any legal document — including estate planning documents like a trust, Will, or power of attorney — you should talk with a lawyer. Using online internet services or forms you find elsewhere can put your own and your family’s welfare in jeopardy.
This caution applies equally to other types of legal documents, such as those involving real estate. Do-It-Yourself / DIY is a wonderful approach for home improvement and repairs or creative endeavors — but it is a method you should never use when a document you sign affects your legal and financial interests.
In my practice at Ager Law Office, I help individuals and families with all aspects of estate planning, including trusts. From my Ann Arbor office, I serve clients throughout Washtenaw County. To talk with me about a Will, trust, or estate plan, call (734) 649-0784, send an email to firstname.lastname@example.org, or use the online contact form.