Trustworthy Trusts?

Trusts have become the some of the most widely known and misunderstood documents in estate planning practice today. Skilled trust lawyers use them to help their clients achieve their estate plan goals. Do-it-yourselfers misuse them to avoid "probate" and create wealth sinkholes that devour assets. Thieves use them to trick innocent people into bypassing lawyers and lining the thieves' pockets with the victims' money. Whom should you trust? Are trusts "trustworthy?"

A trust is simply an agreement that one person makes with another person to care for or manage property. The owner of land or money is called the "settlor," "trustor," or "grantor" of the trust. The caretaker or manager is called the "trustee."

A trust is enforceable in Indiana if there is written evidence of the trust agreement's terms and the agreement is signed by the settlor or his authorized agent. You may make a trust as part of your will (called a "testamentary trust"), or you may make it separately, as a self-supporting agreement (an "inter vivos trust"). An inter vivos trust may be revocable (the settlor can change to stop it) or irrevocable (the settlor can't change or stop it).

A testamentary trust requires special skill in its creation because Indiana law requires testamentary trusts to have particular language. No formal language is required to create an inter vivos trust, but its terms must be sufficiently definite so that the trust property, the identity of the trustee, the nature of the trustee's interest, the identity of the beneficiary, the nature of the beneficiary's interest and the purpose of the trust may be easy to recognize.

Many trusts today are revocable, inter vivos trusts -- commonly known as "living trusts." The settlors of these trusts usually appoint themselves to serve as the initial trustees. The rules for what to do whether the Settlor becomes disabled often require specially detailed wording. Also, the rules governing how and when beneficiaries receive their shares requires careful thought.

Trusts resemble boxes in the sense that they contain the settlor's stuff. A settlor does not need to load up (loading is called "funding") the trust at first, but the settlor should ensure that the trust will be funded. Otherwise, the trust will be empty after the settlor dies and the trust will be worthless. Some trusts are funded by naming them beneficiaries of life insurance policies or retirement plan benefits. Indiana's Transfer on Death Property Act permits Settlors to fund trusts by naming beneficiaries of almost everything from land, to vehicles, to the scissors and rubber bands in their "junk" drawers. Settlors often transfer their land and money to trusts with deeds and reregistration of bank and investment accounts. Many do-it-yourselfers forget to fund their trusts or they fund the trusts improperly.

No trust will solve every problem. Thieves are defrauding people constantly in our community with trust scams. A common scam involves a non-lawyer calling or mailing a solicitation about living trusts. The scammer may promise that the trust will eliminate all attorney fees and taxes. The price of the trust is often $2,500 - $5,000. Sometimes, the crook also tries to sell expensive annuities or life insurance policies with the trust. The crook makes the victim think that neither the victim, nor her family will ever have to do anything or pay anything regarding the trust other than the initial fee. The trust is usually prepared poorly and the victim's family is often surprised by the administrative costs that remain to be paid after the victim's death. The scammer is nowhere to be found.

Well prepared trusts serve important purposes in many estate plans. A skilled estate planning attorney understands when to prepare a trust and how to tailor the trust to accomplish the settlor's objectives. Not everyone needs a trust and reputable estate planning lawyers explain why. You get what you pay for with estate planning services and there is no substitute for working with an expert.

Jeff R. Hawkins and Jennifer J. Hawkins are Trust & Estate Specialty Board Certified Indiana Trust & Estate Lawyers and Jeff is a Fellow of the American College of Trust and Estate Counsel. Both lawyers are admitted to practice law in Indiana, and Jeff Hawkins is admitted to practice law in Illinois. Jeff is also a registered civil mediator and the 2014-15 President of the Indiana State Bar Association.

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