Our Reno Attorney Discusses Foolproof Living Trusts
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A settlor or creator of a trust naturally wants to see a Reno living trust lawyer or any other trustee maintain any trust property or asset according to its terms and for the benefit of the beneficiary. While trusts are fairly straightforward instruments, simple mistakes can interfere with their operation and even invalidate what should be a process for simple property transfers. There are five mistakes settlors make with considerable frequency when creating trusts:
Insufficient Showing of Intent to Create a Trust
Manifest intent is of paramount importance in the creation of a trust. American courts are very protective of individual property rights. Specific, affirmative proof of intent to convey property for the express benefit of a beneficiary is necessary. The standard of proof of intent to make a trust conveyance is similar to that of intent to make a gift of the property. In both cases, the grantor must show intent; however, in the living trust, proof of intent standard is more specific as the granting party must show a specific intent for use of the property in a living trust. Without such a showing, no trust can be valid.
Failure to Fund the Trust Sufficiently
Because a trust conveys property, no trust can exist until ownership of the property actually passes from the settlor to the trust. Trust practitioners often describe the conveyance as “funding the trust.” Funding has two aspects, the act of funding itself and the nature of the property. Failure to deliver the property or failure to place an adequate sum or item of adequate value in trust short-circuits the trust creation process.
Generally, if the settlor conveys some actual property of even nominal value, the trust formation will succeed. Failure for inadequate funding occurs most commonly when the settlor makes no conveyance or places in trust some future interest that cannot connect to any current interest to prove its value and viability.
Failure to Instruct Beyond Precatory Language
Precatory language expresses a wish, desire, or purpose but imposes no legal obligation or affirmative duty. Though a trust document may reflect both the wish and hope of the party creating the trust, unless it includes some language indicating a legal obligation, mere precatory language cannot create a trust.
Precatory language can be an unclear or confusing concept, so it may be helpful to see it as suggested or desired use of the property while effective trust language states a duty to use the property in a specific way. To say, “I hope you use these funds for your daughter’s education,” is quite different from saying, “I give you these funds for your daughter to use only for her education.” A mere hope is different from explicit instructions. Unnecessary and perhaps counter-productive precatory language may be avoided by clear and explicit instructions with no words that may indicate no more than mere desire.
Failure to Name Ascertainable Beneficiaries
A trust is for the benefit of a certain third party. To manage and oversee the trust according to the settlor’s intent, the trustee must identify an individual, group, or entity to which to convey trust benefits. If a trust document names no beneficiary, the trustee cannot exercise oversight because there is no identifiable beneficiary. Viable trusts name beneficiaries and state both the terms and the duties of trustees to them.
Failure to Document the Trust
Where a trust grants real estate or executes a provision of a will, it must be in writing to be valid. It seems obvious that no settlor would fail to reduce trust terms to writing, but in fact some do fail to complete this basic requirement in the belief that oral arrangements and understandings with family or friends never would be matters for litigation. Prudent settlors always put the terms of any large conveyance in writing as a safeguard against unforeseeable contingencies.
Although they can present complex financial problems and difficult personal questions if created improperly, living trusts by design should be simple and straightforward. With a modest amount of due care, the formal requirements for the creation of trusts should not prove to be obstacles to their operation for the benefit of their beneficiaries.
Contact a Reno Living Trust Lawyer
For control over assets after death, a Reno living trust lawyer may recommend a simple living trust and define a few terms to make the process clear and easy to understand. Simple trusts are usually revocable, meaning that the settlor can change any of the terms at any time.
One important reason for a living trust is to protect the financial interests of the beneficiary. Another is to bypass the probate process, which involves the court system with its expenses and delays. When the settlor dies, the revocable living trust ends, but the trust continues in irrevocable form, and the trustee executes its terms.
For more information about simple living trusts and whether to draft one, contact a Reno living trust lawyer from Sutton Law Center at (775) 824-0300.