Anyone who creates a trust has an interest in seeing that any property placed in trust is held according to the terms of the living trust and for the benefit of the named party. While a trust is a fairly straightforward instrument, simple mistakes can interfere and invalidate what would otherwise seem a simple transfer of property. Here is an overview of common mistakes people sometimes make when creating a trust:
1. Failure to Show Intent to Create a Trust
The intent of the creating party is of paramount importance in the creation of a trust. American courts are very protective of individual property rights. Affirmative proof of intent to convey property away from the individual's control for the express benefit of another must be proven. The intent standard for a trust conveyance is much the same as if the property were being gifted: the individual granting the property must show that making such a grant was intentional. However, in the living trust context, the intent standard is more specific: the granting party must show that he or she directly intended the relevant property for use in a living trust. Without doing so, no trust can be considered valid.
2. Failure to Sufficiently Fund the Trust
Because a trust is a conveyance of property, no trust can be created until the property in question actually changes hands. In the trust context, the transfer of property is often referred to as "funding the trust." Funding has two component parts: the first is the act of funding itself. The second is the nature or quantity of the property. Failure to deliver the property or failure to place an adequate item or sum in trust will result in the trust failing. Generally, if some property, even a nominal sum, is delivered, the trust will survive. The most common instances of trust failure due to funding problems are situations in which the granting party fails to make delivery, or the granting party places some future property interest in trust--- with the result that future property interest cannot be tied to any current property interest in a way that proves its viability.
3. Failure to Instruct Beyond Precatory Language
"Precatory" language expresses a wish or desire but does not create a legal obligation or affirmative duty. Though a trust does indeed reflect both the wish and hope of the party creating the trust, unless the trust document contains some language indicating the creation of a legally binding obligation, mere precatory language is insufficient to create a trust.
Since precatory language can be a difficult or confusing concept, it is helpful to think of it as indicating a suggestion or desired use for the property, while effective trust language should indicate a duty to use and hold the property in a specified manner. To say, "I hope you use these ten thousand dollars for your daughter's education," is quite different from saying, "I give you ten thousand dollars to hold for your daughter and to be used only for furtherance of her education." A mere hope sounds different than explicit instructions. If precatory language is a concern, remember to be as explicit as possible in your instructions and to eliminate any words that indicate mere desire instead of clear terms and instructions.
4. Failure to Name Ascertainable Beneficiaries
A trust is created for the benefit of a specific, third party interest. If the property is to be managed and overseen according to the intent of the party who created the trust, he or she must have identified a specific person or group of persons to whom the benefits of the trust are to be conveyed. If a trust is created without naming some beneficiary, then the court and named trustee cannot oversee the trust with any real confidence, since the beneficiaries are not ascertainable. A viable trust will name beneficiaries and set out both the terms of the trust and the duties the trustee owes the beneficiaries.
5. Failure to Put the Trust in Writing
Where a trust involves a grant of real estate or is created through the execution of a will, the trust must appear in writing in order to be considered valid. This requirement seems obvious to most--- who would never dream of failing to place the trust terms in writing? But, a striking number of people fail to comply with this basic requirement, thinking that oral arrangements made with family or close friends will never see the inside of a courtroom. Any prudent grantor will always put the terms of any large conveyance in writing, just in case of some unforeseen eventuality.
Although trusts can often present complex financial problems and difficult personal questions, the creation of a living trust can be relatively simple and straightforward. With a little careful attention, the formal requirements of trust creation should not prevent a trust grant from benefiting the desired parties.