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a man upset that he created a do it yourself trust for his estate plan

Creating a do-it-yourself trust is an easy shortcut to an estate planning disaster

by Amelia Donovan | Contributor
February 14, 2020

There are several disadvantages of do-it-yourself trusts. From failing to create a legally enforceable, accurate, complete and effective document to not picking the right trust for your needs, there are many things that can go wrong. Instead of going the DIY route, you should invest in a qualified estate planning attorney and financial planner to create the trust that best works for you.

If you are exploring the idea of creating a trust, it will not take long to discover the many online services advertising DIY trusts. With claims that creating a DIY trust is simple, fast, easy and inexpensive, these websites can seem like a great option. However, without listing the dangers of DIY trusts, they lull you into a false sense of security. Before deciding to use a DIY trust, you should take time to learn about the many things that could potentially go wrong. Most often, DIY trusts are unwise and prone to failure.

How do you ensure the DIY trust is a valid legal document?

One of the greatest dangers of DIY trusts is creating a document that institutions will accept as a legally enforceable trust. The statutory requirements of wills and trusts are not flexible. The laws must be strictly followed for a trust to be valid, and even the slightest mistake can cause the entire document to be negated. Each state has its own requirements about signatures, witnesses and other format details. A professional will know the exact steps that you must take to create a legally enforceable trust.

How do you create a DIY trust that is accurate?

a senior couple reviewing their DIY trust

Even if you succeed in creating a valid trust, it is not guaranteed that the trust accurately represents your intentions. When you create a DIY trust, there is no professional looking over the document to ensure that your wishes are accurately being met. Often, the flaws are realized after death when there is no chance to fix it or explain your true intentions.

If there is ambiguity in the trust, litigation costing thousands of dollars (much more than it would have cost to consult with an attorney) could result. If the trust is unclear and two people believe they are entitled to the same property, they will have to argue their case in court. As interested parties testify, the transfer of your assets to your loved ones will be delayed.

How do you make sure your DIY trust is complete?

DIY trusts are generally fill-in-the-blank preprinted forms with the purpose of serving as many people as possible. However, this “one-size-fits-all” approach is not ideal for estate planning, where everyone's needs are different. Very often, your trust will not be complete if you take a DIY approach. With estate planning professionals, you can discuss your goals, intentions and unique circumstances to ensure that the trust is complete and best fits your needs.

Will the DIY trust be effective?

Every state has different property ownership, probate, estate tax, gift tax and inheritance tax laws. Tax law, in particular, is extremely complex and changes frequently. There are numerous options available to reduce taxes through estate planning, but only a professional will have a detailed understanding of the laws to create the most effective plan. If you choose a DIY trust, there is a high probability that money will be lost in administration and tax costs. Investing in an attorney to draft your trust could save your estate substantially in tax and administration expenses.

Will a DIY trust get funded?

A trust is a legal entity set up to hold ownership of property. Funding a trust is the process of transferring ownership of your assets from you to your trust. This is a critical step to creating a trust. A trust will only have control of property that you put into it. Any property left out of the trust and still titled in your own name will have to be probated.

The funding of a trust should be done strategically. In particular, there are tricky tax considerations with retirement accounts, pensions and life insurance policies. Making a mistake while transferring property could lead to accidental disinheritances or burdensome, expensive administration. If you create a trust on your own, you run a much higher risk in making a mistake during the funding process.

How do you know a trust is right for you?

A trust is not always the right tool to have in your estate plan. In some circumstances, a simple will is the best option. Only through talking with a professional, can you choose the estate planning documents that will best fit your needs. Even if a trust is right for you, by speaking to a professional, you may be introduced to other critical estate planning tools, such as a durable power of attorney or advance medical directive.

How do you know what type of trust to create?

an attorney going over different types of trusts with a client

Most of the online DIY forms are for simple revocable living trusts, but there are several specialized trusts that may better suit your needs. Only through talking with an estate planning attorney, will you know which trust is best for you. Some of these specialized trusts include:

  • Spendthrift trust. A spendthrift trust is one in which the property in the trust is protected from the beneficiary's creditors. This trust may be particularly helpful if the beneficiary is going through divorce or bankruptcy.
  • Special needs trust. A special needs trust is set up to benefit a disabled beneficiary. One major benefit of this trust is that it does not disqualify the individual from receiving public benefits.
  • Charitable trust. A charitable trust is a trust that benefits a charity or the public. It can be used to lower estate and gift and tax.
  • Bypass trust. A bypass trust allows married couples to avoid estate taxes on certain items when one spouse passes away.

How do I create an estate plan?

There are numerous options and scenarios to consider when developing an estate plan that protects your legacy and achieves your objectives, and important decisions should be made with the advice of qualified lawyers and financial experts. Membership with Legacy Assurance Plan provides members with valuable resources and guidance to develop comprehensive estate plans that take life's contingencies into consideration and leave a positive impact for generations to come. Legacy Assurance Plan members also receive peace of mind that a team of trusted, experienced professionals will assist them in developing legal, financial and tax strategies that will meet their needs today and for years to come through periodic reviews.

This article is published by Legacy Assurance Plan and is intended for general informational purposes only. Some information may not apply to your situation. It does not, nor is it intended, to constitute legal advice. You should consult with an attorney regarding any specific questions about probate, living probate or other estate planning matters. Legacy Assurance Plan is an estate planning services company and is not a lawyer or law firm and is not engaged in the practice of law. For more information about this and other estate planning matters visit our website at legacyassuranceplan.com.

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