Checklist of Common Mistakes in a Revocable 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 revocable 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 a Revocable 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 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. | No safety valve on Trust B to prevent automatic distribution of income when Trust A and Trust Q are over funded above a combined total of the federal applicable exclusion. | |
| ____ | 7. | No protection in Trust B to prevent dissipation of Trust B for medical emergencies of surviving spouse. | |
| ____ | 8. | Erroneously used “Revocable Trust” in name of Trust giving trust built in obsolescence. | |
| ____ | 9. | 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. | |
| ____ | 10. | No protector and successor protectors designated. | |
| ____ | 11. | No provision to prevent dissipation of trust by beneficiary with an addiction. | |
| ____ | 12. | No place designated for recording changes to trust in public office. | |
| ____ | 13. | Distributions to children are arbitrary at specified ages without flexibility. | |
| ____ | 14. | No grandchildren’s sub-trust — should primary beneficiaries predecease distribution. | |
| ____ | 15. | Arbitrary distribution provisions in grandchildren’s sub-trusts — without flexibility. | |
| ____ | 16. | No stated trust objectives. | |
| ____ | 17. | No spendthrift provisions. | |
| ____ | 18. | No generation-skipping trust utilized. | |
| ____ | 19. | No provisions for terminating trust if too small. | |
| ____ | 20. | 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. | |
| ____ | 21. | No authority to divide up funds to prevent generation-skipping contamination. | |
| ____ | 22. | No protective provisions to cover divorce of spouses and dividing up trust. | |
| ____ | 23. | No provisions for holding property in trust as joint, community, and separate property. | |
| ____ | 24. | No convenient method for listing assets in trust and their nature — community property, husband’s separate property, wife’s separate property and having spouses agree on classification and have separate attorneys advise each spouse or waive this stated right. | |
| ____ | 25. | Assets are not all funded to trust. | |
| ____ | 26. | No catch-all transfer if some assets are missed. | |
| ____ | 27. | No provisions that allow beneficiaries to easily remove trustees. | |
| ____ | 28. | No provisions for removing advisors. | |
| ____ | 29. | No “pour-back” provision if probate is advantageous. | |
| ____ | 30. | No provisions allowing trustees to singly deal with their own separate property without concurrence of other trustee. | |
| ____ | 31. | No provision for handling divorces of grantors. | |
| ____ | 32. | No method for listing assets as separate, joint, or community and having spouses agree on classification and have separate attorneys advise each spouse or waive this stated right. | |
| ____ | 33. | No provision for present valuing of dollar amounts used in trust based on Consumer Price Index increases. | |
| ____ | 34. | Trustees not authorized singly to sign and process insurance and tax forms. | |
| ____ | 35. | Trustees’ powers are not complete. | |
| ____ | 36. | No system for complying easily with blind trust laws in some states. | |
| ____ | 37. | No provision to allow payments on behalf of beneficiaries. | |
| ____ | 38. | Children are not considered part of a board of trustees. | |
| ____ | 39. | No savings clause for discretionary distributions. | |
| ____ | 40. | No statements of wishes authorized. | |
| ____ | 41. | No provision for convenient interpretation of trust without court procedure. | |
| ____ | 42. | No coordinated joint interpretation of will and trust. | |
| ____ | 43. | No parents’ trust set up as continuant trusts for elderly parents needing aid. | |
| ____ | 44. | No simultaneous death provisions with presumption that wealthiest died first. | |
| ____ | 45. | Trust A has insufficient language to make it a purely revocable trust. | |
| ____ | 46. | No provision to exhaust Trust A first, then Trust Q, then Trust B. | |
| ____ | 47. | No “spray provision” in Trust B to reduce taxes. | |
| ____ | 48. | No limitation protection to protect Trust B from dissipation in second marriage. | |
| ____ | 49. | No special power of appointment in Trust B to protect surviving spouse from insolent children. | |
| ____ | 50. | No “dead branch” protection built into trust (protection if a child has no issue). | |
| ____ | 51. | No dynasty provisions built into trust (an arrangement for the trust to continue for multiple generations). | |
| ____ | 52. | No consideration for fairness between multi-aged children on marriage and education expenses. | |
| ____ | 53. | No equalization clause to take into account pre-death gifts. | |
| ____ | 54. | No special powers of appointment in children for children’s trusts. | |
| ____ | 55. | No separation into sub-trusts for tax purposes so as to have built-in income splitting. | |
| ____ | 56. | No method for settling disputes that arise out of the trust such as the Integrity Agreement. | |
| ____ | 57. | No Rule Against Perpetuities protection. | |
| ____ | 58. | No trustee protection for knowledge of events and good faith actions. | |
| ____ | 59. | No provision designating governing laws. | |
| ____ | 60. | No authority to merge trusts. | |
| ____ | 61. | No authority to create trusts. | |
| ____ | 62. | No provisions for establishing incapacity of trustees, protectors, or beneficiaries. | |
| ____ | 63. | No complete list of definitions set forth. | |
| ____ | 64. | No provisions for continuation of gift programs. | |
| ____ | 65. | No provisions to define and determine rights of adopted and illegitimate children. | |
| ____ | 66. | No provisions for Flower Bonds. | |
| ____ | 67. | No detailing of trustee duties. | |
| ____ | 68. | No provisions detailing how accounts are rendered. | |
| ____ | 69. | No provisions protecting trustees from liability. | |
| ____ | 70. | No provisions for removing trustees with criminal charges, convictions, or bankruptcy. | |
| ____ | 71. | No provision for handling trustee conflicts of interest. | |
| ____ | 72. | No provisions setting forth voting rights of multiple trustees. | |
| ____ | 73. | No provisions allowing trustees to give powers of attorney and authority to act to each other. | |
| ____ | 74. | No provisions on how to hold life insurance in trust and protecting separate property rights for each spouse. | |
| ____ | 75. | List of separate and community property. | |
| ____ | 76. | No approval of husband and wife property designation. | |
| ____ | 77. | No separate agreement between husband and wife to have all property in trust treated as community property with special division rights in the event of a divorce. | |
| ____ | 78. | 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. | |
| ____ | 79. | No provision to explain disinheritance of natural heirs, if such occurs. | |
| ____ | 80. | No provision that the document is intended to be legal and effective in all states and countries. | |
| ____ | 81. | Provisions of Abstract of Trust do not match text, numbering and labeling of trust. | |
| ____ | 82. | 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.