Checklist of Common Mistakes in an Irrevocable Trust
This Preventive Law Study was written by: John Goodson, Colleen Manley and Christine Goodson Forakis.
Summary
Written for estate planning attorneys, this guide is crucial to any properly executed irrevocable trust. After decades of practice and experience, John Goodson designed these checklists in order to prevent the attorney mistakes that are far too frequently made when drafting documents. Mistakes can be costly to the drafting attorney who may have to redraft or amend a document at their own expense. The Checklist of Common Mistakes in an Irrevocable Trust is part of a series of checklists created to aid the estate planning community.
Based on a presentation by John Goodson To the College of Estate Planning Attorneys
(Legend: “X” = needs correction or attention; “—“ = OK; “n/a” = not applicable; and “?” = have question here)
| Client Name: | Evaluator Name: | |
| Date of Review | Number of Errors: | Percent of Errors |
| ____ | 1. | No listing or other evidence that all assets of clients have been transferred to trust. | |
| ____ | 2. | No Certification of Trust Power and Authority and Abstract of Trust to facilitate transactions with trust and to maintain privacy. | |
| ____ | 3. | No simple and short trust name for ease of reference. | |
| ____ | 4. | Effective date of trust is not on the first of a month for ease of remembrance. | |
| ____ | 5. | No current advisors — legal, accounting, family, life insurance, property and casualty insurance — designated to insure continuity of information to successor trustees. | |
| ____ | 6. | Protector provisions are not included to protect trust in emergency situations when trustees must be removed quickly, provisions changed to meet new conditions, or situs changed. | |
| ____ | 7. | No protector and successor protectors designated. | |
| ____ | 8. | No provision to prevent dissipation of trust by beneficiary with an addiction. | |
| ____ | 9. | No place designated for recording changes to trust in a public office. | |
| ____ | 10. | Distributions to children are arbitrary at specified ages without flexibility. | |
| ____ | 11. | No grandchildren’s sub-trust — should primary beneficiaries predecease distribution. | |
| ____ | 12. | Arbitrary distribution provisions in grandchildren’s sub-trusts — no flexibility. | |
| ____ | 13. | No stated trust objectives. | |
| ____ | 14. | No spendthrift provisions. | |
| ____ | 15. | No provisions for terminating trust if too small. | |
| ____ | 16. | No savings clauses for protection against inadvertent generation skipping by giving the beneficiaries the right to a general power of appointment if generation-skipping transfers occur. | |
| ____ | 17. | No authority to divide up funds to prevent generation-skipping contamination. | |
| ____ | 18. | No provisions that allow beneficiaries to easily remove trustees. | |
| ____ | 19. | No provisions for removing protector. | |
| ____ | 20. | No provisions for removing advisors. | |
| ____ | 21. | No provisions for present valuing of dollar amounts used in trust based on Consumer Price Index increases. | |
| ____ | 22. | Trustees are not authorized singly to sign and process insurance and tax forms. | |
| ____ | 23. | Trustees’ powers are not complete. | |
| ____ | 24. | No system for complying easily with blind trust laws in some states. | |
| ____ | 25. | No provision to allow payments on behalf of beneficiaries. | |
| ____ | 26. | Children are not considered part of a board of trustees. | |
| ____ | 27. | No trust objectives set forth. | |
| ____ | 28. | No statements of wishes authorized. | |
| ____ | 29. | No provision for convenient interpretation of trust without court procedures. | |
| ____ | 30. | No “dead branch” protection built into trust (protection if a child has no issue). | |
| ____ | 31. | No dynasty provisions built into trust (an arrangement for the trust to continue for multiple generations). | |
| ____ | 32. | No special powers of appointment in children for children’s trust. | |
| ____ | 33. | No separate sub-trusts for tax purposes. | |
| ____ | 34. | No method for settling disputes that arise out of the trust such as the Integrity Agreement. | |
| ____ | 35. | No Rule Against Perpetuities protection. | |
| ____ | 36. | No trustee protection for knowledge of events and good faith actions. | |
| ____ | 37. | No provision designating governing laws. | |
| ____ | 38. | No authority to create trusts. | |
| ____ | 39. | No provisions for establishing incapacity of trustees, protectors, or beneficiaries. | |
| ____ | 40. | No complete list of definitions set forth. | |
| ____ | 41. | No provisions for continuation of gift programs. | |
| ____ | 42. | No provisions that provide that grantors have been given advice of irrevocability. | |
| ____ | 43. | No provision that authorizes uniform gift to minor custodians to respond to and administer “Crummy Notices”. | |
| ____ | 44. | No detailing of trustee duties. | |
| ____ | 45. | No provisions detailing how accounts are rendered. | |
| ____ | 46. | No provisions protecting trustees from liability. | |
| ____ | 47. | No provisions for removing trustees with criminal charges, convictions, or bankruptcy. | |
| ____ | 48. | No provisions for handling trustee conflicts of interest. | |
| ____ | 49. | No provisions setting forth voting rights of multiple trustees. | |
| ____ | 50. | No multiple successor trustees and methods of picking successors so that the trustees or beneficiaries never have to go to court to have successor trustees appointed. | |
| ____ | 51. | No Crummy provisions in trust to permit annual gift tax exclusions. | |
| ____ | 52. | No one designated in writing to mail Crummy Notices in correspondence outside trust. | |
| ____ | 53. | Insurance policies are not listed in schedule. | |
| ____ | 54. | No plan to use inexpensive trustees when trust contains only life insurance policies initially. | |
| ____ | 55. | No provision for defective gifts to revert back to Q-TIP Trust of surviving spouse or to use Unified Credit to avoid tax on gift — treatment of defective life insurance gifts within 3 years of death. | |
| ____ | 56. | No Intentionally Defective Grantor Trust provisions specifying (1) control persons; (2) payment of premiums; and (3) authorization of unsecured loans to Grantor, substitution of property, and third parties adding other beneficiaries. | |
| ____ | 57. | Contains 5 x 5 power for the beneficiary and exposes the assets to the creditors of the beneficiary. | |
| ____ | 58. | No power to authorize creation of QSST Trust for S corporation stock contributed to trust. | |
| ____ | 59. | No provision that the document is intended to be legal and effective in all states and countries. | |
| ____ | 60. | Provisions of Abstract of Trust do not match text, numbering and labeling of trust. | |
| ____ | 61. | Not using large print so the client and older low-level bureaucrats may read with ease. |
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DISCLAIMER
The content of this report is general in nature and is meant to be used for informational purposes only. Due to possible changes in the law and interpretations of the law, in addition to the uniqueness of each individual’s situation, this report should not be relied upon as an expression of legal advice. Before any action is taken by the reader, it is imperative that legal counsel or professional advisors be consulted.