The Pitfalls of Do-It-Yourself Revocable Living Trusts
Should you attempt a do-it-yourself living trust?
The challenge of writing a revocable living trust yourself is a formidable one, even with the aid of books, software, and online helps. Also known as living or inter vivos trusts, their importance is too great to be left to chance.
These trusts allow you to fast-track the transfer of property after death without having to deal with the probate court system in your state. Done properly, the transactions are all handled privately and you have significant leeway to decide exactly when and how you want these transfers of assets to be accomplished. Done improperly, you could have a disaster on your hands.
How a Revocable Living Trust Works
A living trust is a separate legal entity set up to hold ownership of some or all of your property. You "fund" it after creating it, retitling that property into the name of your trust.
The creator of a revocable living trust is typically referred to as the "grantor," and in most cases the grantor will also serve as trustee, managing the trust and the assets it holds.
The grantor can name a "successor trustee" to take over management of the trust should the grantor ever become incapacitated and unable to manage it personally. The successor trustee would also step in at the time of the grantor's death to transfer the assets to the trust's named beneficiaries. This process occurs without the need for probate because the trust itself hasn't died and it holds ownership of this property.
The grantor can "undo" or dissolve a revocable living trust at any time, thus the name.
Estate Planning Is "Not One Size Fits All"
Estate planning documents can be found in books, online, and generated by estate-planning software, but they're usually designed to cover only the most basic estate-planning needs. They're generic and often "one size fits all," intentionally kept as simple as possible to accommodate a wide range of users. They're often just a matter of just filling in some blanks.
Ideally, your trust's formation documents should state who gets your assets and when, and how the transfer of assets to your beneficiaries should take place. Planning for all this will most likely require more than checking off a few boxes on preprinted forms.
Everyone's estate planning needs are different. What works for you and your family will most likely not be the same as the needs of your sister, your parents, or your next-door neighbor. Computer software isn't really designed to accommodate these differences or any of your unique concerns.
Laws Vary Widely By State
For example, one couple who had completed a revocable living trust using a well-known estate-planning software program lived in Florida, but the software-generated trust agreement software stated up front that it was governed by Nevada law. They missed that.
Florida is a separate property state while Nevada is a community property state, and this completely turned the couple's trust into a nightmare to administer. The living trust form that was generated ended up being totally inappropriate for their particular situation.
Then there are the legal formalities required to write and sign a valid trust agreement. Many state-specific issues can affect a trust, including the definition of descendants, anti-lapse statutes, homestead rights, common law marriages, putative spouses, and elective share laws. It's unlikely that a generic trust form not dedicated to a particular state could properly address all these specific state law issues, although you can sometimes purchase forms that comply to a particular state's laws.
The Proof Is in the Disclaimers
The problem with estate-planning books and software programs is pretty apparent when you read the same or similar type of disclaimer found on all of them:
"The information contained in this book or program is not legal advice and is not a substitute for legal advice. For legal advice, consult with an attorney."
The attorney you choose should be local as well, because you're still dealing with all those unique state laws. Each state can also have somewhat different rules and requirements for signing the trust documents, for having them notarized, and for witnesses to the signing. Your entire trust can be invalidated if you don't comply. Your trust's terms won't be honored and, ultimately, your estate will have to pass through probate.
You'll Need Other Documents
The good news is that real estate, automobiles, or virtually any property can be conveyed in a living trust. The trustee or successor trustee will have the same control that a title owner has regarding the asset, but ownership has to actually change for this to be the case.
Funding your trust with these assets will require that additional documents be drawn up, so creating a trust is not simply a matter of drawing up one form. For example, a new deed would be required to transfer real estate, and that deed must be filed and be on record somewhere according to your state's laws.
This might all be more than you can handle yourself.