People look to trusts to enable them to avoid the often lengthy delays and fees of probate, to reduce taxes, and to protect their privacy, since wills are a matter of public record. Trusts can also enable a trustee to step in immediately without court intervention to manage assets should you become incapacitated. Because more and more people are creating trusts, perhaps it’s inevitable that an online industry has developed for those who want to create a DIY trust in Maryland (or elsewhere) without the benefit of legal counsel.
Under Maryland law, you are permitted to create your own trust. But should you? In an effort to save money you (or your estate) can actually end up spending much more than it ever would have cost you to pay an attorney. On top of that, if you make a mistake creating a DIY trust, your wishes may not be carried out, and your trust could be overturned altogether.
Let’s look at why you may want to establish a trust and the risks of doing it yourself.
Types of Trusts and Your Goals
Before we jump right into whether it’s wise to create your own DIY trust in Maryland without the benefit of legal counsel, let’s take a moment to review why you may even want to set up a trust.
All trusts are governed by state and federal laws including statutes, case law, tax codes and federal regulations. It can be very complex, but the two main categories of trusts are revocable living trusts and irrevocable trusts.
Revocable Living Trusts
Revocable Living Trusts enable you, the grantor, to retain control of your assets and make changes during your lifetime. Upon your death, of course the trust becomes irrevocable. These are used primarily to avoid probate, but there are other reasons. A revocable living trust enables you to maintain some control when leaving property to a minor. The trustee oversees the trust until the child reaches an age you stipulate. A third reason to create a revocable living trust is to have your wishes in place in case you become incapacitated, since you would have already stipulated a trustee.
Irrevocable Trusts
Irrevocable trusts cannot be changed once you create them. Attorneys often use irrevocable trusts to protect assets as part of long-term care planning. In other words, if you place property in an irrevocable trust, you no longer own it. The trust does. Therefore, after the required time limit, a long-term care facility cannot target it to help pay for your care.
Do I Need a Trust?
Before deciding whether to create a DIY trust in Maryland, you need to determine if a trust is a good idea for your situation. It’s a fallacy that only the wealthy can benefit from trusts. But keep in mind that if your estate is valued at $50,000 or less ($100,00 if your only beneficiary is your spouse), then your state is eligible for a streamlined probate process in Maryland. So, if your goal in creating a trust is to avoid the delays of probate, you may not need one if your estate falls within those parameters.
Basic Steps in Setting Up a Trust
1. Determine your goals in setting up a trust.
2. Determine what kind of trust will best serve you and your beneficiaries.
3. Decide what assets you want to transfer to the trust. Keep in mind, you will need to update your trust as your family situation changes.
4. Determine your beneficiaries and how they can best be protected. For example, do you want assets to immediately go to your 18-year-old daughter? Or perhaps you want her to acquire them when she is out of school and has more direction, such as at age 25?
5. Choose a responsible, ethical and competent trustee.
6. Determine what terms and conditions to include in the trust and create the trust document.
7. Sign the trust in front of a notary.
8. Fund the trust, which means transfer the assets into the trust. This means they are titled to the trust and the trust now owns them.
9. Consider creating a pour-over will. If you have any assets that you did not put into your trust, perhaps because you did not have time or just forgot, your left-over assets will be transferred to your trust upon your death. Whether or not you need a pour-over will depends on your situation, but it’s usually recommended as a safety net.
What Are Some of the Risks of Setting Up My Own DIY Trust in Maryland?
The only benefit to setting up your own trust instead of working with an experienced estate planning attorney is to save money initially. Everything else is a downside that can cost you or your estate substantially.
Here are some of the substantial risks and drawbacks you should consider.
Template v. Customization
One of the biggest problems with DIY trusts is that you are just following an online template. There is little analysis of the complex and unique situation of you and your family. A good estate planning attorney will discuss your goals, your finances, your family’s needs and special situations such as providing for a disabled adult child. Creating a trust that will not be successfully challenged and that carries out your wishes is not a matter of just filling in some blanks. There is a lot of analysis, planning and legal strategy that goes into it.
Every trust has its own set of complexities. Some situations that may complicate your trust include real estate ownership, blended families, disabled or special needs beneficiaries, significant assets, business interests, nursing home and Medicaid planning, and a myriad of other issues.
Vague Terms and Technical Errors
Someone who is not experienced with estate law and uses a general online template may unknowingly employ ambiguous or contradictory terms. The confusion caused by vague terms can result in the grantor’s wishes not being followed or legal disputes among beneficiaries and excluded parties. A judge may even declare a vague trust to be invalid.
Similarly, failure to comply with Maryland’s technical requirements (such as requirements for witnessing) can invalidate your trust. Generic trust templates may not meet the standards of Maryland law. And even if they do, you will need to keep up with federal and Maryland law and adjust your trust if necessary as the law changes.
Tax Consequences
How a trust is constructed can result in major consequences for estate tax, inheritance tax and income tax. Federal and Maryland tax codes are complicated and ever-changing. A trust slip-up can substantially cost the estate and its beneficiaries.
Nursing Home or Medicaid Planning
Similar to tax consequences, a trust’s structure can have substantial impact on Medicaid eligibility. Irrevocable trusts used for Medicaid planning must comply with look-back rules and may need to be created years in advance. Mistakes here can jeopardize eligibility, and you must strictly comply with federal and state law.
Trust Funding
A trust is only effective if assets are properly transferred into it. This is called “trust funding.” This is a complex process for someone creating their own DIY trust in Maryland, a process that isn’t just listing property in a trust document. The process often requires re-titling real estate, bank accounts, and investment assets. If the trust is not properly funded, a court may find the trust partially or completely invalid.
Leaving Things Out
Experienced estate planning attorneys have not only studied estate planning law, but they have created trusts many times before. If this is your first rodeo, it’s likely some things will not occur to you and do not appear in a template you find online. These could include a long litany of items. A few examples may be indicating how debts are to be paid, who will be appointed as the guardian of your children, and what to do about business assets.
Maintenance
Federal and state estate, inheritance and tax laws change. Your life and that of your family also changes. Marriages, divorces, births, deaths, retirement, promotions, inheritances, buying and selling real estate, acquiring investments, and many other things may impact your trust. That’s why you should periodically update your trust every few years or when you see a major life change.
Estate planning attorneys track the law and know what kind of life changes impact trusts. If you create your own DIY trust in Maryland, it’s unlikely you will keep up with the updates your trust needs to remain effective. The best estate planning attorneys will have an estate planning maintenance program in place to ensure your trust represents your wishes and stays in line with changing laws.
Beyond a Trust
Though creating a trust is important, it’s not the only piece to your estate planning. You will also want to coordinate your trust with
- Any will (probably a pour-over will) Wills
- Powers of attorney
- Advance medical directives
- Beneficiary designations that appear on policies not just in the trust
- Tax planning strategies
A holistic plan ensures all elements work together, protecting your legacy and reducing the risk of family disputes.
Discovering Problems Too Late
If you create your own DIY trust in Maryland or anywhere else, it’s unlikely you will ever know whether it has problems. Any problems will, however, become very apparent after you have passed away, leaving your family to deal with issues you never imagined.
Want to Learn More About Setting Up a Trust?
Though it’s possible for you to set up your own DIY trust in Maryland, it’s very unwise. Any initial savings you see in creating the trust are far overshadowed by the risks. Mistakes can lead to invalid documents, tax penalties, lawsuits, or a distribution plan that doesn’t reflect your wishes. For most people, especially those with families, property, or anything more complex than a simple bank account, the guidance of an experienced Maryland estate planning attorney ensures peace of mind.
📞 Call Chesapeake Wills & Trusts at (410) 590-1900 to set up a consultation.
🖥️ Or schedule your consultation online at https://www.ChesapeakeWillsAndTrusts.com/contact/