Be Careful How You Word Your Declaration of Trust
Even if you are very early in the research and brainstorming phase of your estate planning process, you have probably given more than a passing thought to setting up a trust. Living trusts, which are set up during your lifetime, and testamentary trusts, the establishment of which is provided for in your will, make it possible for your assets to pass on to your heirs at a much lower cost than if those assets went through probate. The law allows for great flexibility with the way that trusts operate; you can make the trust do almost anything you want it to. Ambiguities in your declaration of trust can leave the trust vulnerable to disputes, which could cause your family members as much stress as you were hoping to avoid by setting up the trust. If you are planning to set up a trust, it is best to do so with the help of a Maryland estate planning lawyer.
How to Create a Trust
In the terminology of trust law, the person who sets up the trust and transfers their property to it is called the grantor, settlor, or transferor. Once you transfer your property to the trust, it legally belongs to the trust and not to you. The person who has access to the money in the trust and can disburse it is called the trustee. In a living trust, you can name yourself as a trustee, or you can designate someone else. The beneficiaries are the people or organizations who will receive money from the trust according to the grantor’s instructions.
You Can Never Be Too Specific
According to Maryland law, it is possible to establish a trust by verbal agreement, without any written documents, but in practice, it is almost impossible to implement a trust that does not have written documentation. The document that sets up the trust is called a Declaration of Trust. It should contain, at minimum, the following information:
- The name of the trustee or trustees
- The names of successor trustees who will take over trustee duties in the event of the original trustee’s death
- The names of the beneficiaries
- The date that the trust ends or the event that would cause it to end (For an adult beneficiary, it might end when the beneficiary dies. For a child beneficiary, it might end when the beneficiary reaches adulthood.)
You can never be too detailed in the instructions you set out in the Declaration of Trust. For example, James Vito set up a trust for his four children. In his Declaration of Trust, he listed trustees and successor trustees and also specified that it was possible to amend the terms of the trust if 75 percent of the beneficiaries (three of the four children) agreed to it. During Vito’s final illness, his daughter Candace objected to the way her siblings, as well as the relatives appointed as successor trustees, were managing his other financial affairs. As a result, the other siblings removed Candace as a beneficiary shortly after Vito’s death. The court ruled that amending the trust should not be interpreted to include removing a beneficiary, as the settlor had clearly intended the trust to benefit all four children. In the end, Candace got to keep her trust assets, but the dispute could have been avoided if the Declaration of Trust had said that 75 percent of the beneficiaries cannot remove the fourth beneficiary.
Let Us Help You Today
A Washington DC estate planning lawyer can help you start the new year off right by establishing a trust. Contact Tobin, O’Connor & Ewing for help with your case.