As a general rule, trusts can be a great way to manage how property and assets are distributed. Unlike a will, they can begin while the person who sets up the trust is still alive, and they can use assets in a very specific way that will be followed by courts even after the person who set up the trust has died. The intent that was put into the trust when it was set up will be followed as closely as realistically possible by judges and lawyers who view the initial trust documentation.
What exactly does a trust do?
A trust can give away or donate funds and property at scheduled intervals. It can also place conditions on when and how these items can be used. For example, it is common for a person to set up a trust that dispenses a sum of money to a young relative when they get married. Certain individuals also might donate a piece of property to be used only for certain charitable purposes.
Problems that can easily be avoided when a trust is set up
Despite these advantages, there are also some pitfalls that those who set up trusts should avoid to prevent future issues.
The person who sets up a trust can appoint one of more people as a trustee, or it can be managed by two or more co-trustees. This is an important decision, as only appointing one person who will receive property or money from the trust can create a conflict of interest where the other beneficiaries get shortchanged. It certain provisions of the trust are not activated until after the person who set it up dies, it can be too late to fix this issue.
Management of assets is also a crucial decision. Many trusts only pay out money at certain intervals or during important life events to keep the instrument from being depleted too quickly. Parents need to be especially mindful of children who will spend all of the money frivolously, or make taxation mistakes, as this is a common problem and one of the reasons why money is usually not paid out all at once.
Anyone who will benefit from the trust should also have a serious discussion with the person who sets it up while they are still around. This will make the goals and purpose of the trust clear ad avoid future problems. Some wishes may not be obvious based on the legally binding language in the document alone.
Simple administrative errors can also be costly. People who set up trusts should ensure that everyone’s name, contact information, and location is current and clearly spelled out in the trust. It is important to be able to identify any person or institution that is going to benefit from the document, especially if there will be a large gap in time between when the trust is created and the benefit will be paid out.
Get help setting up a trust today
For more information about setting up a trust in the St. Petersburg area of Florida, contact The Baby Boomers’ Barrister. You will receive specific advice about estate planning and other issues related to how to distribute property and funds through trusts.