Five Red Flags of Living Trusts
When creating a trust, it is important to make sure that the document and work is done correctly. Unfortunately, many online services sell wills and trusts as products, and not as part of an estate plan. Estate planning can be complicated. What works for one estate may be useless for another. Here are some red flags to watch out for when looking for a trust.
- No Funding Assistance
Consulting with a client and drafting the trust to the client’s specifications is one-half of the job. The other half is funding the trust. This means titling assets to the trust, executing transfer-on-death deeds, and updating beneficiary designations.
If the trust is a box, we need to fill it with assets for it to work. Without funding the trust, it is just an empty box.
Without funding the trust, the trust doesn’t have any assets to give. The trust becomes useless. All of the work and money it took to make the trust goes down the drain. Online service providers do not offer this work because it is tedious, boring, and detail-oriented. It requires calling banks, filling out paperwork, and visiting notaries.
At Greenline Law, we recognize funding a trust as an essential part of creating a trust. We complete this work for you as part of the service. It’s what you are paying us for and part of the job.
- Tax Benefits
A revocable living trust has no tax benefits, and any claims that they do are incorrect. Can you use other types of trusts like irrevocable trusts for taxable estates? Yes, but those are an entirely separate category of trusts.
A living trust has no direct tax advantages. Any claims that a living trust has tax benefits are simply false. Can you optimize your estate plan for taxes? Yes, but that type of estate planning has nothing to do with living trusts. Anyone who claims otherwise is passing on bad information and you should steer clear.
- Trusts made by online sites
First, all an online website that creates trusts automatically is simply plugging information into a computer program and giving you an automatically generated form. By their own admission, they are not giving or offering legal advice.
They aren’t helping you fund the trust. They aren’t looking at your unique situation and creating an optimal plan. They are trying to advertise and make as much money as possible by selling computer-generated forms.
They leave you with all the work. When you consult with a lawyer, the lawyer looks at your situation and suggests legal advice based on that. I am not sure what people are paying for when they buy a trust from a website. You buy the form, and then you are left with all of the work and none of the legal guidance. These are simply a waste of money.
- Pushy Sales Tactics
Not everyone needs a trust. For many estates, a simple will works great. In Texas, we have something called an independent administrator system. If you have a will, you can appoint your executor, and the probate court will grant your executor broad powers to distribute assets to beneficiaries as outlined in your will.
However, many unscrupulous people (including attorneys) will push a trust over a will for the fact that the trust is more expensive. Trusts are more complicated and have administrative overhead than a will. It’s overkill for smaller estates.
Thus, if the person you are working with is pushing a trust and says wills are bad, that person is doing you a disservice.
- No Pour-Over Will
Every trust should have a will called a pour-over will. A pour-over will acts as a backup to the trust and sweeps any assets that weren’t in the trust into the trust. Without a pour-over will, if there are any assets that you forgot to put in the trust then go through probate.
Given that the point of a trust is to avoid probate, not having a pour-over will defeats the purpose of the trust. If the person you are working with does not provide a pour-over will or even mention it, this is a sign that they do not have expertise in estate planning.
Conclusion
It’s important to consult with a reputable attorney when creating a trust. Many things can go wrong. It’s essential that that your trust is done properly and actually works. There are no shortcuts in estate planning. At Greenline Law, we try to make creating a trust as easy for you as possible while maintaining a high level of excellence. If you are interested in creating a trust for your estate plan, you contact us and schedule a consultation.