Do you trust your Trust?

The word TRUST carved into a stone wall. 3D render with HDRI lighting and raytraced textures.

As a follow up to last month’s Dallas Morning News article by Pamela Yip entitled “Maintaining Trust”, we thought those who receive our email might be interested in the questions that she asked and a more detailed explanation as follows:
Q: Do you have the right trustee?
A: The trustee must not only be someone you trust (hence the term “trustee”) – but also someone who might be able to handle investments, tax planning, accounting, public benefits issues, etc. in addition to being responsible for making distributions and perhaps dealing with family members who have conflicts. They are held to a higher standard (as a fiduciary). We often put clauses in trusts indicating that no one can qualify to serve as a trustee if (1) convicted of a felony or crime of moral turpitude (2) there has been a determination of mental incapacity (3) they have disappeared for a period of time or (4) the individual is being treated for drug, alcohol, gambling or a chemical dependency or other disorder.
Q. Who can remove a trustee?
A. While the maker of the trust has mental capacity, the trust is usually designed so that the maker can remove the trustee. If the trustee lacks mental capacity, makers of the trust often give an independent third party or beneficiaries the right to remove a trustee (instead of going to court).
Q. Does your trust protect your children and grandchildren from lawsuits and divorce?
A. If the beneficiary gets an asset directly or outright, then there is no protection. So, the general rule is whatever you can get, then your creditors can get. However, if the asset goes into a trust for children or grandchildren, then as long as the asset is held in the trust it is protected from children or grandchildren’s lawsuits or divorce. Once distributed where the child has total control, it is subject to such person’s creditors.
Q. Have you funded your trust?
A. One of the most common problems is that people sign a trust, but then actually fail to re-title the assets into the name of the trust. Simply putting down a list of items that you want to go into the trust does not fund it. So, for example, if you have a bank account then you should re-title the account in the name of the trust. If you have real estate, then the property should be deeded into the trust. However, tax issues should be considered depending on the type of trust.

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