Estate planning, when done right, involves so much more than simply executing a Last Will and Testament that directs the disposition of your estate assets when you are gone. A well thought out estate plan can include a variety of additional components, such as incapacity planning, tax and probate avoidance, and Medicaid planning, just to name a few. One of the most common estate planning tools used to accomplish these additional goals is a trust. If you have never established a trust before, you may not know what all is involved in creating a trust agreement. Of course, it is in your best interest to work closely with an experienced Illinois estate planning attorney when you create your trust to ensure that it is drafted properly and that it will accomplish the intended goals. There are, however, some common tips for setting up a trust that you may find helpful as well.
Trust Basics – What Is a Trust?
If helps to have a basic idea what a trust is and how one works before discussing tips for setting up a trust. 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. The beneficiaries of a trust may be individuals, entities, or even family pets. A trust may also have both current and future beneficiaries.
Setting Up a Trust – Do’s and Don’ts
- Do define your trust purpose as narrowly as possible. The more specific and narrow you are able to define your trust purpose, the better your odds are of creating a successful trust because when it comes to trusts, the trust terms go a long way toward determining the success, or failure, of the trust. The more clearly you define your trust purpose, the more clearly your trust terms will be.
- Do choose the right type of trust. Once your trust purpose has been defined, you can start deciding which type of trust will best serve that purpose. For example, if your trust purpose is to ensure that your spouse has control of your assets in the event of your incapacity, a revocable living trust is probably your best choice. On the other hand, if your trust purpose is to shield your assets then you must use an irrevocable trust. Finally, if you do not plan to activate the trust during your lifetime, a testamentary trust may be your best choice whereas if you plan to put the trust to use while you are alive you will need a living trust.
- Don’t appoint a spouse/family member/friend as your Trustee unless they are truly qualified. One of the most common, and costly, mistakes people make when setting up a trust is to simply appoint a spouse, family member, or close friend based solely on convenience and the fact that they “trust” the individual. Trusting your Trustee is, indeed, important; however, the wide variety of duties and responsibilities your Trustee will make is crucial for you to pick someone with the experience and skills required to successfully perform the job of Trustee. If, after careful contemplation, you decide that your spouse/family member/friend is actually qualified to be the Trustee it is certainly acceptable to appoint him/her. Just make sure you think it through first.
- Don’t forget to appoint a successor Trustee. A trust cannot operate without a Trustee; yet, people frequently forget to appoint a successor Trustee or add terms that provide for the manner in which one can be appointed if needed. If the original Trustee is unable, or unwilling, to serve, the trust ends up in court because of the lack of a Trustee. The simple way to avoid this happening to your trust is to appoint a successor Trustee and include a provision with instructions on how a successor may be selected if needed.
- Do consider providing your Trustee with some degree of discretion. As the Settlor of the trust, you decide how much, if any, discretion your Trustee will have with regard to disbursements and other trust business. Although your trust terms will govern the trust business, it is virtually impossible to include a term that will cover every possible contingency and circumstance. Giving your Trustee discretionary powers allows the trust to continue operating when issues arise that are not covered by the trust terms, instead of the trust landing in court every time something comes up. If you chose the right Trustee, giving him/her some discretion should not be too much of a risk.
If you have additional questions or concerns regarding setting up a trust, contact the experienced Illinois estate planning attorneys at Hedecker Law, Ltd. by calling (847) 913-5415 to schedule an appointment.