The popularity of ‘do-it-yourself’ estate planning has skyrocketed in the last 20 years. Because of the ease with which someone can create legacy planning documents using Google, AI, Chat GPT and Legal Zoom, many people believe they can find enough legal information online to create their own family living trust without the guidance of a competent estate planning attorney. The fact is most people do not have the know-how nor experience to draft a living trust on their own. Further, thier self-help often times negatively impacts their legacy and lays the circumstantial evidence groundwork to fuel a trust dispute between surviving family members.
The truth is navigating the world of family trust planning is not one-size fits all. Working with a competent estate planning attorney can help mitigate unforeseen risks and diffuse the potential for family disharmony. Attorneys do this by reviewing trust language, explaining how the trust functions, clarifying the obligation of the parties to trust, and, in general, advising you on how to further your planning goals so your family trust is administered after your life without interruption or involvement of the local probate Court.
While the best trust documents are drafted by an estate planning attorney and customized to meet specific family planning goals, if not properly drafted and executed, trust litigation and disputes between family member trustees and beneficiaries of the trust surrounding the administration of trust assets may be inevitable. To assure that your family trust will be administered without dispute or challenge and avoid running afoul of those legal grounds that would give the Court a reason to intervene in the trust administration, consider these seven (7) planning considerations when preparing your family trust agreement:
Consideration #1: Trust Document Properly Executed
Florida law imposes strict document execution formalities and legal requirements in order for a living trust agreement to become legally binding. The Florida Trust Code requires the trust creator (settlor) to be at least 18 years old with the requisite mental capacity and intent to create a trust. See Florida Statutes section 736.0402 and section 736.0601. Generally speaking, a living trust agreement executed in Florida should meet the legal requirements of validly executed Last Will and Testament in Florida. See Florida Statutes section 732.502. In other words, state law formalities require the trust settlor to execute the trust agreement in front of two witnesses who sign in the presence of each other and the settlor. Any living trust not signed in accordance with these laws risks not being authenticated by the Court when deposited for probate after settlor’s death.
Consideration #2: Trust Language is Clear and Not Ambiguous or Confusing
Because poorly drafted trust legalese can be interpreted to have different and varying meanings, when drafting a family trust, the trust language and instructions within the trust agreement should be as clear and concise as possible. The rights and obligations (or any limitation to the same) of the parties to trust should be clearly spelled out and defined. If trust language cannot be properly interpreted and understood, the Court may be required to intervene and give its interpretation of the language or provision. For example, if the grantor fails to properly identify a trustee, i.e. does not provide their full legal name, address and their relationship to the grantor, or fails to name successor trustee in the trust document, the purposes for which the trust was created will be frustrated by the trusteeship vacancy and the probate Court will have to get involved.
Consideration #3: Settlor Not Unduly Influenced Nor Lacking Mental Capacity at Time of Execution
The State of Florida requires the settlor to meet a standard of testamentary capacity before creating or modifying a trust. The person settling the trust must have (i) sufficient capacity to comprehend the nature and extent of his or her property, i.e. who they are and what their assets, (ii) knowledge of his or her relationship to the trust beneficiaries of his or her estate; and (iii) a general understanding of that they creating a trust. Generally speaking, this means the settlor has sufficient active memory to recall trust information without being prompted and be able to provide details about the elements of the trust or some rational judgment the trust asset or parties to the trust agreement they signed. Practically speaking, because creating a revocable living trust is more complicated than creating a last will and testament, it is implied that the mental capacity required to create a trust is a higher standard than that of creating a will.
Consideration #4: Trustee Willing and Able to Perform Fiduciary Duties of behalf of Beneficiaries
Florida law imposes specific legal obligations on the trustee to serve the beneficiaries. As a result, trustee negligence is one of the most common reasons for trust litigation lawsuits. This can arise if the trustee has failed to fulfill their required fiduciary duty to beneficiaries in good faith. If this happens, a trustee may be sued for their mistake or misgivings or for their inaction or failure to act. Most commonly, beneficiaries may choose to sue trustees for making a poor investment decision, failing to make timely distributions of trust assets, commingling personal assets with trust assets, forgetting to provide trust beneficiaries with an annual accounting of trust assets, selling trust property below fair market value, collecting excessive trustee compensation, making unethical or imprudent investments, stealing or improperly converting trust assets or failing to administer the trust in accordance with terms of the trust document.
Consideration #5: Designation of Successor Trustees Contemplated to Avoid Vacant Trusteeship
Trustees have several important duties under the Florida Trust Code to ensure they maintain compliance when administering trusts. These duties are important to ensure that the trustee puts the interests of beneficiaries before thier own interests and perform duties and obligations to the trust beneficiaries in good faith and in accordance with the terms and purposes of the trust. A trustee’s failure to further its obligations to the trust beneficiaries and administer the trust in the best interests on the beneficiaries may constitute a breach of trust and give rise to legal claims from trust beneficiaries. For example, if the trust settlor fails to insert a mechanism into the trust agreement to resolve a trusteeship vacancy, the departing trustee or beneficiaries may need to involve the Court to identify a family member successor trustee or other independent third party willing to accept successor trustee appointment.
Consideration #6: Fund Trusts with Deeds Conveying Real Property
In every real estate transaction, accuracy and correctness of the deed to be signed and recorded in critical. If errors abound in the preparation of deeds that are beyond harmless, this may cause the deed to become defective and require corrective measures to cure the error in the chain of title. Although some errors in deeds are harmless and may be ignored, others are fatal to the conveyance and require corrective measures to memorialize a legal transfer of real property. If grantor fails to properly identify the grantor and grantee parties of the deed or fails to accurately describe the property in question, the act by deed of the grantor is not necessarily binding on the grantee.
Consideration #7: Properly Memorialize Conveyance of Tangible Property to Trust
For a revocable living trust to take legal effect over tangible assets, the trust must be funded by transferring those specific assets into the trust. By taking the time to inventory tangible property to be conveyed to trust within a ‘Schedule of Assets’, e.g. financial accounts, real estate assets, mineral rights, business interests, art, antiques, family heirlooms, collectibles and equitable tangible property, the trustee (and more importantly future successor trustees) will be able to locate and identify those various trust assets to be managed and ultimately distributed to trust beneficiaries. By memorializing a Schedule of Assets at time of executing the trust, the grantor can remove any uncertainty or vagueness about grantor’s conveyance of assets into trust, as well as, confirm a fair market value estimate at time of conveyance.
Locksley A. Rhoden, Esq., LL.M.
Email: lrhoden@wealthprotection.us
The Wealth Protection Firm | www.wealthprotection.us
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