The Pitfalls of DIY Trusts – And How You Can Avoid Them

A plethora of Internet fads are making the rounds in the short time we’ve all migrated to the World Wide Web. Everything from crafts on Etsy, to tutorials on YouTube, all the way to important things like personal taxes with TurboTax, have taken on a very do-it-yourself (DIY) feel. While the Internet might be a very handy tool utilized to give users more power over their affairs, some things need a professional eye to avoid hard financial wakeup calls.

Take trusts, for example. If you aren’t familiar with trusts, they’re a financial agreement wherein an individual places personal assets (or trusts them) in the care of a trustee, like an attorney or a bank. Assets associated with trusts can be anything from insurance policies, real estate, to good old-fashioned cash. Sounds great, right? In the hands of an experienced financial expert, they certainly can be great when managed properly. But if you or your client needed the definition to understand a trust, it’s probably not something you/they should DIY right out of the gate, and here’s why:

  1. Trusts are not a one-size-fits-all kind of process. Real estate trusts are set up differently than others, and the laws surrounding them are state-based. In fact, real estate trust laws vary from state to state more than other laws generally do. If your DIY trust is not set up to state regulations, you could invalidate the process.
  2. The forms associated with setting up trusts are very specific, and must be completed properly. If you don’t know which line to put something on, or you follow the wrong regulations, you might walk away with a trust that’s not valid, or, worse, does something completely different than you intended.
  3. Let’s not forget industry jargon. If a trustor-to-be just learned what a trust is, they might not know other key terms, such as settlor, trustor, and beneficiary. One misplaced word means an invalid trust, or a trust that doesn’t work very well for the trustor.

A financial professional in the field of trusts does know how to set them up. They can see how the trust effects the title of a real estate property, and whether it says and does the right things to the benefit of the trustor and their beneficiaries. If you or your client need coaching to do their personal taxes, TurboTax might not be the best avenue. Likewise, DIY trusts should be handled by experts to avoid pitfalls, until the trustor learns the ins and outs of the process. If you have any questions about the best avenue to pursue a trust, be sure to speak with your attorney.