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Law Offices of Ronald W. Rutz
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January 10, 2004: Living Trust Mistakes

Q: You have written about common mistakes and problems in many areas of estate planning, but specifically what about living trusts?

A: I have touched on some of these points in other columns, but letŐs focus on living trusts.

First and foremost, I usually find that people have a fifty or a hundred page document but truly do not understand what they signed. It is unacceptable for a person to pay big bucks for something, and then sit glassy-eyed and stammer when asked to explain what they have in place and how it works. I suggest taking the document to a second attorney for a review and testing yourself by explaining it (at least the basic parts) to him or her.

As a corollary point, it is not wise to be completely dependent on the person setting up the living trust. There is nothing wrong with intending to use that person in the future, but maybe lay the groundwork so that the family has a choice if needed and so everyone does not become a captive of a particular organization to implement things.

Unlike other estate documents, it is mandatory that the document be reviewed with an attorney on a regular basis. Especially for a tax living trust, the inner connections need to be monitored and perhaps adjusted to be certain that the living trust will work like a well-tuned and oiled machine. This is further highlighted by the next point.

In order to prevent a probate at the first death, everything needs to be titled in the trust. More importantly, as the years go by, newly acquired assets or the proceeds from the sale of assets need to be put into the trust. A routine review of the trust as previously suggested will spot any such problems. It is best to know beforehand if there will be a charge by the attorney who did the documents for these review sessions.

Most trust owners do not understand the limits placed on the trustee. If flexibility and discretion are desired, then the trust should give general discretionary powers. Some trustees feel uneasy about accepting the position unless the terms of the trust are very specific. Thus, making sure the document and the trustee are in sync becomes critical. Consequently, knowing your trust document and your trustees is the key to accomplishing goals or preventing future bumps, roadblocks, or even landmines from disrupting the future exercise of the trust.

Unfortunately, several times lately, I as an attorney have had to come to the rescue in situations where trustees have high-jacked the trust and attempted to take over a personŐs assets. Given the standard competency language that is trust boilerplate, lack of court supervision, and the self- serving interests of many selected trustees, the trust turned into the equivalent of an unattended car sitting unlocked in a parking lot with its engine running.

Living trusts are often done without the benefit of a durable power of attorney. Both documents are needed together and one is not necessarily a substitute for the other.

I am out of space, but not out of points. As a general conclusion, read and understand your living trust and then review it with an attorney other than the one who set it up.

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