Your trust can be the most important part of your Oregon estate plan. But when abuses, lawsuits, or improper setup cause trust problems, the fallout could wreck your trust and your entire estate.
Fortunately, many problems with Oregon trusts are avoidable and preventable. Let’s look at some possible trust pitfalls.
1. Incorrect, improper, and/or inconsistent trust setup
Trusts are legal instruments that provide mechanisms for asset ownership, protection, and distribution. If they’re not set up properly, the trust may not be legally valid, and the trust may fail to fulfill your wishes for asset management or distribution.
What to do?
Typically, working with an experienced, qualified Oregon estate plan attorney, combined with your own comprehensive due diligence, trust, and openness, can help get your Oregon trust off to the right start.
2. Lack of ongoing regular trust maintenance and review
Trusts require regular review, maintenance, and sometimes, updates. The trust’s viability and/or legal validity can suffer if the terms of the trust stop being current.
For example, life events such as births, deaths, marriages, and divorces may result in the terms of your trust no longer matching up with your wishes. The trust also needs to reflect changes in relevant business interests, insurance policies, account or insurance beneficiaries, or other circumstances.
What to do?
Set a regular trust check-in and review with your Oregon estate attorney. Also be proactive, and talk with your lawyer whenever changes or life events prompt a need to review and update the trust.
3. Asset title, deed, and other ownership never got transferred to your Oregon trust
When you set up a will, you can simply establish how you would like certain assets to be distributed, and those assets can be under your name. When you set up an Oregon trust, however, the trust needs to become the owner of those assets, not you.
In other words, setting up a trust means you also have to “fund the trust” by transferring ownership from yourself to the trust. If you don’t, then the trust doesn’t get funded. An empty trust can’t distribute property it doesn’t own.
What to do?
After setting up your trust, fund it. Block out the time and list out the assets to transfer from your ownership to that of your Oregon trust.
4. A trustee mismanages the trust and/or breaches their fiduciary duty
A trustee has an obligation to act in the best interests of the trust, not themselves. They have a fiduciary duty, or an obligation to put their own interests aside for the interests of the trust and those provided for by the trust.
However, sometimes trustees don’t do their job well. That can result from poorly understanding their duties, unintentionally mishandling assets and records, failing to meet deadlines (such as filing tax returns), or deliberately misusing or abusing the trust and its assets, often for their own personal gain.
What to do?
Taking care with picking a trustee is a good start, but it’s not foolproof. Trust documents can include protective measures too, such as:
- Prohibit self-dealing
- Establish transparency and accountability check-ins for parties connected to the trust
- Prohibiting loans or gifts outside the terms of the trust
- Set out a process to remove and replace trustees
5. Trust conflicts and/or lawsuits arise from beneficiaries, family, friends, or other parties
Trusts operate outside of probate court and without the need for court intervention or oversight. It’s not necessarily easy to challenge a trust, but trust conflicts do happen.
How a trust distributes property or benefits someone over another person could cause friction. Sometimes people may try to cause conflicts, delays, or even lawsuits around a trust, such as an upset relative, angry business partner, or other disgruntled party.
Conflicts could disrupt a trust’s operations, and legal fights could delay or derail the proper distribution of property from the trust to its beneficiaries.
What to do?
Clear, specific trust language, along with clearly defined terms, is often a reliable preventive measure, leaving nothing unclear to parties or attorneys.
Maintaining regular, clear communication with trust parties can also prevent conflicts or help you resolve them at an early stage. So can regularly reviewing and updating the trust. It may also be advisable to include conflict resolution language and guidelines.
6. Failing to consider taxes
Taxes can affect a trust, but it can be easy to fail to consider tax obligations, record-keeping, and filing returns when setting up, managing, or distributing property via a trust.
Failing to meet tax obligations, however, can result in financial or other penalties that make tax burdens or other consequences far more problematic.
What to do?
Consult with your Oregon estate attorney and a financial professional to understand your requirements as grantor or trustee. From there, consider setting up schedules, checklists, or other accountability tools so you are more likely to fulfill tax obligations in a timely manner.
7. Setting up the wrong kind of trust
If you intended to provide for a person with a disability or special needs, but you used the wrong kind of trust, that could result in a loss of benefits for the person you intended to help.
Or, if you wanted to modify a trust but had set up an irrevocable trust, that could be challenging, time-consuming, and expensive to modify—if it’s possible at all. How a trust is established and managed could also have an impact on Medicaid eligibility, such as the 5-year/60-month Medicaid Look-Back Period for long-term care Medicaid in Oregon.
What to do?
Discuss your needs, wishes, and goals with your attorney as you get underway setting up your trust. That way you are more likely to set up the right kind of trust that meets your needs and fits your situation.
BONUS 8. Elder abuse, benefits ineligibility, and other trust problems
The above trust problems are just a few examples of the sorts of issues or conflicts that can prevent your trust from working the way you intended.
The wrong trust setup, for example, can prevent a person from being eligible for certain benefits. Elder abuse or incapacitation could cause improper trust setup, or for misuse without accountability or correction.
Plus, for trusts such as revocable trusts, there is typically not judicial oversight. Proper management comes down to the trust’s terms and trustees. If problems do come up, legal action or court intervention may be unavoidable.
Trusts are powerful legal instruments, but they can also be mismanaged, abused, or poorly established. Fortunately, most trust problems are preventable. Trusts don’t have to go bad, but setup and review from an Oregon trust attorney can keep problems from wrecking yours.
