Top 5 Issues With Trust

Trusts can be powerful estate planning tools. They allow grantors to pass assets—including to minors—without going through probate court while maintaining control over how and when distributions are made. However, trusts also come with potential challenges that should be carefully considered before creating one. Below, we discuss the top five issues we frequently encounter with trusts.

1. Failing to Fund the Trust

One of the most common mistakes we see is when individuals spend significant money creating a trust to avoid probate—only to leave it empty! A trustee can only distribute assets that are actually in the trust. For a trust to function properly, it must be funded, meaning assets should be transferred into the trust either during the grantor’s lifetime or upon their passing.

2. Technical Defects in the Trust

A major drafting error in many trusts is failing to name a backup trustee. Too often, we see trusts where only one trustee is listed. While Ohio law provides backup provisions for appointing a successor trustee when one is not named, this can lead to confusion, delays, and potential mismanagement of trust assets while a replacement is determined. Naming a clear backup trustee helps prevent unnecessary complications.

3. Trustee Duties and Breaches of Fiduciary Duty

Trustees have significant fiduciary responsibilities, including the duty of loyalty, the duty of care, and the obligation to act in the best interests of beneficiaries. If a trustee mismanages trust assets, engages in self-dealing, or fails to follow the trust’s terms, they could face legal action. Ensuring that the selected trustee understands and upholds these duties is crucial to maintaining the integrity of the trust.

4. Beneficiary Disputes

Disagreements among beneficiaries are common, particularly if the trust’s terms are vague or perceived as unfair. Beneficiaries may challenge the trustee’s decisions, question the trust’s validity, or dispute how assets are distributed. These conflicts can lead to costly litigation and may require mediation or court intervention. To minimize disputes, grantors should clearly outline their wishes and include a mechanism for resolving conflicts within the trust.

5. Failing to Update Other Estate Planning Documents

When a grantor funds a trust during their lifetime, failing to update related documents can create serious issues. For example, if an outdated financial power of attorney remains in place, it may not apply to assets within the trust. A financial power of attorney only allows an agent to act on behalf of an individual—not a trust. To avoid this issue, the designated agent should be named as a co-trustee or successor trustee to ensure seamless asset management.

Conclusion

Trusts are valuable estate planning tools, but they must be properly structured and maintained to avoid costly mistakes. Careful drafting, compliance with state laws, and diligent administration are essential to ensuring your trust functions as intended and minimizes risks.

If you’re considering setting up a trust—or need to review an existing one—we can help ensure everything is properly structured to protect your assets and beneficiaries. Schedule a call with us today to discuss your estate planning needs and avoid these common pitfalls.

‍