What makes a trust “good” or “bad”? What happens if my trust is too short—or too old? How do I know if my trust will avoid probate? Can a bad trust lead to higher taxes or family conflict? Can I just create a simple trust with an online template? What if the trust is not funded correctly? How can I make sure my trust really protects my family?
By James L. Cunningham Jr., Esq.
Is your trust a ticking time bomb?
Let me be blunt: I see a lot of bad trusts. Some are outdated. Some are poorly written. Some are missing key provisions. Some aren’t even signed.
Most were done with good intentions but are so vague, so stripped-down, or so incomplete that they’re practically guaranteed to land your family in court.
If you don’t want your family to go through probate, pay unnecessary taxes, or lose assets to lawsuits or ex-in-laws, you need a trust that works.
So let’s talk about how to spot a good trust—and avoid the bad ones that cause heartache, court battles, and tax bills your heirs won’t see coming. If you want real protection, the key strategy is to take action before a problem arises.
The most common trusts are Living Trusts, which form the heart of a modern Estate Plan. Living Trusts are “revocable,” which means they can be altered by the person or people who initially created the trust – we will call them “Grantors.” Most of this article and the accompanying webinar are about Living Trusts, but please keep in mind that there are many kinds of trusts with specialized purposes, including useful “irrevocable trusts.” A Living Trust is not always the right vehicle—yet another reason to talk to a qualified Estate Planning Lawyer. Contact CunninghamLegal for a consultation. You may also wish to view the webinar that accompanies this article.
What Is a Trust?
A trust is a legal document. But the best way to think of it is as a bucket. You create a trust (the bucket) and you put assets in it. The handle of the trust bucket is held by the Trustee (typically, that would be you, while you are alive and well) and it benefits someone – usually you during your life, and your family after you die.
If it’s a Living Trust, you will likely put most of your stuff in the bucket—your house, your bank accounts, your investments, your business.
The key benefits of any trust include helping protect your family and your legacy, maintaining your privacy, helping avoid probate court, sometimes helping minimize taxes, and potential protection of an inheritance from creditors, predators, and divorces.
Not everything should be held by a trust, and it’s vital to talk to a qualified Estate Planning Lawyer about what to put in and what to leave out. You may also find this article about funding a Living Trust helpful.
Any trust requires three things:
- A Trustee (who controls and manages the trust)
- A Beneficiary (who benefits from the trust)
- A thing of value (which is held by the trustee)
Without all three, it’s not a trust.
If a Trustee dies or resigns, the trust does not go away. When the Trustee dies or becomes incapacitated, the “office” of trustee is vacant and someone else takes over as Trustee. Since they succeed you as Trustee when you die or you can no longer perform your duties, that person is called the Successor Trustee. Once the Successor Trustee takes on the role of Trustee the word “Successor” is dropped from the title and they are then simply called “Trustee.” This “Successor” Trustee manages and distributes the assets in the bucket for the Beneficiaries, according to the instructions in your trust. Here’s a useful article and webinar on choosing Successor Trustees.
Which brings us to a potentially huge problem: If the instructions in your trust are vague, incomplete, or outdated when a Successor Trustee takes over… the whole plan starts to unravel.
Why Are Bad Trusts So Common?
Bad, poorly-written Living Trusts are common for many possible reasons. First, most people don’t know what a good trust even looks like or what it should contain. Second, they might get talked into using a do-it-yourself Living Trust template online. Third, they go to a lawyer who is not a Certified Specialist in Estate Planning, Trust and Probate Law, and who gives them a “short and sweet” five-pager. Or fourth, and I see this one all too often, their trust is decades old; they haven’t looked at it since 1991.
Let’s be clear: A three-page trust is not worth the paper it’s printed on. It’s a disaster waiting to happen.
And when I say it’s a disaster waiting to happen, I’m not talking about losing a few thousand bucks. I’m talking about families losing homes, entire businesses, or a lifetime of retirement savings. I’m talking about bitter family feuds that turn into lawsuits between siblings. I’m talking about years spent battling in probate court. I’ve even seen a bad trust cause a $4.5M tax bill that could have been zero.
I’m not exaggerating when I say bad trusts can break apart families.
Why Are Good Trusts So Long?
Most well-written trusts are 40, 50, even 60 pages. Good trusts are this long because they have to be. Trusts have to clearly address a wide range of scenarios and contingencies. So many pages are required in order to clearly describe your actions and wishes in dozens of scenarios without ambiguity or doubt.
A trust must be so clearly written that it’s able to function without a judge. That means it has to answer every important legal question inside the document itself. What can the Trustee do? What can’t they do? What if a Beneficiary is in bankruptcy? What if a Trustee goes rogue? What if someone dies out of order? What if a child has special needs? What if your adult child is getting divorced when they inherit? Every one of these questions – and many more – should be covered in a good trust.
Believe me, you want that level of detail written into the document. The simple truth is… the shorter your trust, the more likely you are to wind up in court.
What Are the Legal Requirements for a Trust in California?
In California, a trust needs to meet certain legal requirements in order to be valid. It must be created by someone over 18 years old with legal capacity. It must have clear intent. It must have a valid purpose. It must have identifiable assets. It must have a Trustee. It must have at least one Beneficiary. And it must be signed.
At CunninghamLegal we specialize in working with California clients. If you live in California or own property here, we should talk. . If you live outside California, we can refer you to one of our colleagues in another state.
What Are the Biggest Red Flags of a Bad Trust?
Poorly-written trust documents have at least seven major red flags, any of which can spell doom. These include failing to sign on the dotted line, trust documents that are overly brief, unfunded, outdated, and written from an online or form template without proper oversight by a qualified Trust and Estate Planning Attorney.
- It’s not signed. I can’t tell you how many times someone passes away and the family brings in a beautifully written trust… that was never signed. If it’s not properly signed, it’s worthless. It may as well not even exist.
- It’s way too short. Anything under 10 pages is, quite frankly, a joke. Even 20-page trusts often leave out essential powers, protections, and contingencies. Writing a trust is not the time to focus on economy of words and brevity. The ambiguity often leads to Probate Court.
- It’s not funded. You can have the best-written trust in the world—but if your assets aren’t in the trust, it doesn’t do any good. Real estate, bank accounts, stocks—they need to be retitled into the name of the trust. If they’re not, they’ll go through probate. Click here to learn more about funding a trust.
- It’s outdated. If your trust was drafted before 2012, I’ll bet you lunch it’s missing important updates. Tax laws change. Life circumstances change. Your family situation can change. Your trust has to change too. The older the trust, the more likely it’s out of date.
- It was created online or with a non-specialist. DIY trusts are my least favorite surprise. They often ignore taxes, skip key clauses, and lack real-world enforceability. Even if your trust was done by an attorney, but one who doesn’t specialize in Estate Planning, it probably shows. Don’t risk it.
- You don’t understand what the trust says. Trusts are full of legalese and words that non-lawyers don’t fully understand; there’s no way around that. Nevertheless, it’s a red flag if you have no idea what’s in it. An experienced Estate Planning Attorney will go through each page of the trust with you to make sure you understand it and that the document reflects your desires.
- The trust is vague, poorly written, or unclear. This can create major problems in the future. A trust that is not clearly written may not properly manage or distribute your assets. It will likely cause confusion, and possibly spark disagreements or even legal battles among beneficiaries.
Here’s an example of the type of vagueness I see all too often in DIY trust documents:
Able and Baker have three adult children and they download a template of a poorly written Living Trust to distribute their assets after their deaths. The DIY trust document states that their assets should be divided “equally among the three children.” Sounds straightforward, right?
Wrong.
The trust does not specify when or under what conditions the assets should be distributed. And what does “equally among the children” even mean? If there are three homes in the trust with different appraisal values, does giving each child one of the homes satisfy that clause? Or should all three homes be sold and the proceeds divided evenly?
What if one of their children is going through bankruptcy or divorce? Does his third of the estate now become joint property subject to the divorce? When should the kids get the funds? Is there a tax avoidance strategy, or will there be a huge tax bill?
What if one of the children passes away before the distribution of assets? Does his third now get split between the two surviving siblings? Or do the deceased sibling’s two young children get his share of the estate? If so, at what age can they access the money? Who controls that access?
So many contingencies that all need to be covered in the trust. Now you can probably see why trust documents can run 40 or 50 or 60 pages.
By the way, this article isn’t just theory—it’s what we encounter every day with our clients. If you want real protections in your trust, take action now. Reach out to our team at CunninghamLegal for expert guidance.
What Should a Living Trust Always Include?
A Living Trust should always include some key elements. Here are some characteristics I consider non-negotiable in a modern, well-structured Living Trust.
- Clear instructions for incapacity. Dementia. Alzheimer’s. A good trust must spell out who takes over and how they will use your assets for your benefit. Here’s an article on planning for incapacity.
- Detailed Trustee powers. Can the Trustee sell real estate? Borrow money? Invest in a family business? Your trust must clearly state what is and is not allowed.
- Guardrails for Beneficiaries. If your child is young and immature, or bad with money, or going through a divorce, or struggling with gambling or addiction—your trust should protect them from themselves. A well-crafted trust can accomplish this.
- Provisions for out-of-order deaths. What if your child dies before you? What happens to their share? Does it go to their kids, or somewhere else? Such unlikely life events do happen, and they must be accounted for and included in the trust.
- Named Successor Trustees. Your chosen Trustee might quit, become unavailable, ghost you, or become incapacitated. You need backup successor trustees written into the trust. At least one, and another alternate after that one is better.
- A Trust Protector. This is a neutral third party with the power to remove a bad Trustee, correct mistakes, or fix the trust if laws change. I cannot stress this enough. A good Trust Protector can potentially save your family from court.
- Tax mitigation strategies. Especially in estates over a few million dollars, if you fail to include tax mitigation strategies, your family could owe the IRS millions.
Please remember that a Living Trust is only part of a full Estate Plan. A full Estate Plan will include other key elements, including a Durable Power of Attorney, Advance Health Care Directives, and more.
What If the Trustee “Ghosts” You? (A Common Problem)
I think I’ve made it clear how disastrous consequences can ensue from a poorly written trust. Let me tell you a story about Sonny.
Mom dies. Sonny becomes the Successor Trustee and moves into Mom’s house. Doesn’t pay rent. Ignores calls. Stops talking to his siblings.
Eight years go by.
The frustration builds, and eventually the siblings sue to have Sonny removed as Trustee. They go to Probate Court. The court eventually orders Sonny to account for the trust’s money and to pay rent. Legal fees rack up. A bitter legal battle ensues that rips the siblings apart and takes years to resolve.
All because Mom’s trust didn’t include a Trust Protector with the power to remove Sonny without going to court. I’ve seen this movie too many times.
The Cost of No Expert Advice on a Living Trust
Let’s look at another example with some concrete numbers. Able and Baker have an estate worth $12M when Able dies in 2020. A few years later in 2025, the investments have grown and now Baker has a $15M estate. When Baker dies in 2026, the estate is worth $17M. A Living Trust was created, but appropriate professionals, including a savvy Estate Planning Lawyer, were never consulted along this road to remarkable success.
After Baker’s death, the Successor Trustee listened to some very bad advice from friends: “Don’t do anything for a year.” Again, nobody consulted with the appropriate professionals. So nobody filed a tax return for Baker. Major mistakes.
As Estate Planning Attorneys describing this situation, we might say, “The trust lacked the structure or ‘guard rails’ to address estate inertia.” Estate inertia is the tendency of people to do nothing after the death of a loved one. Indeed, estate inertia is probably the number one problem heirs face. A good Trust should address potential estate inertia with both guardrails and alternative pathways.
Upon Baker’s death, $7M of Baker’s estate passed tax-free, but the remaining $10M was taxed at a rate of 45% or $4,500,000 due 9 months after Baker’s death. There were also penalties for late filing. Had Baker consulted CunninghamLegal early on and filed a Portability 706 after the death of Able, the estate taxes would possibly have been … $0. Had the Successor Trustee worked with a professional Trust Administrator, tax mistakes leading to additional penalties might not have been made.
In other words, with the proper set of advice and actions, they could have paid zero. Instead, the price of not getting proper advice was $4.5 million.
Do You Have a Good Trust? A Checklist
A good trust should communicate legal rights, obligations, and responsibilities without involving the courts. A good trust should stand alone and give your Successor Trustee clear instructions and proper authority to get the job done without having to go to Probate Court.
Here’s a quick checklist for determining if you have a good trust or a disaster waiting to happen. Ask yourself these questions:
- Was your trust drafted or reviewed by a savvy, specialist Trusts and Estates Lawyer in your state? Someone who asked a lot of questions and took the time to understand your particular situation? Someone who would know what important clauses might be missing from your document?
- Is your trust signed?
- Is it long enough to cover all contingencies? What if people die “out of order” (for example, children passing before parents).
- Can your trust stand alone with clear instructions that do not create confusion or ambiguity that will lead to Probate Court?
- Are your assets actually in the trust, and properly titled to the trust? (Hint: just because the trust states that it controls something, doesn’t mean it does.)
- Is your trust up-to-date with current laws and your life circumstances and family situation? Might it, for example, suddenly give millions to someone who just turned 18? Should it take account of an impending divorce of one of your children?
- Does it include carefully-delineated Trustee powers?
- Does it include a Trust Protector in case a change must be made to the Trust or if the Trustee fails to act or acts irresponsibly?
- Does it protect your loved ones as much as possible from themselves, their exes, and the IRS?
- Does it include sufficient flexibility for the Trustee to make good decisions about distributions, support for Beneficiaries, investments, “decanting” from one trust to another, and more.
If the answer is “no” or “I’m not sure” to any of the above… you probably don’t have a good trust. You might have a trust that’s putting your family at risk. The more times you answered “um…maybe” to that list of questions, the more urgently you need a qualified, specialist Estate Planning Lawyer.
As a California estate planning attorney with over 30 years of experience, I’ve seen The Good, The Bad, and The Ugly when it comes to trusts—and believe me, there’s a lot of ugly out there. My job is to help you stay out of court, avoid unnecessary taxes, and protect the legacy you’ve worked a lifetime to build. Set up a call with us, and let’s get your trust right where it needs to be.
If Trusts Are So Important, Why Don’t More People Have them?
Trusts are incredibly important, but there are some reasons why most people don’t have a trust. This is such an important question—and honestly, it cuts to the heart of what we see every day in our Estate Planning practice.
Here’s the frank answer: Most families don’t have a Living Trust not because they don’t need one, but because of a mix of procrastination, misinformation, and fear. Let me break this down a bit.
1. People think having a will is enough.
Many people assume that if they have a will, they’re covered. What they don’t realize is that leaving just a will behind means their family will have to go through probate. It doesn’t avoid court—it sends your family straight to it. A will just tells the court what you would like to happen, then a judge decides what actually happens.
2. They’re afraid of lawyers and legal costs.
People worry it’s expensive, confusing, or will involve hours of deciphering legalese. They fear getting a huge bill in the mail for legal services. What they don’t see is that not planning can be 10x more expensive later, in court fees, taxes, and family fights. And even 10x is a low estimate.
3. They’re overwhelmed and don’t know where to start.
Let’s be honest—“Call estate planning attorney” doesn’t top anyone’s weekend wish list. Even smart, financially successful people freeze-up when it comes to estate planning. There’s a psychological barrier—“I’ll do it later,” or, “I don’t have enough money to need a trust.” But trusts aren’t just for millionaires. Trusts are for anyone who wants to stay out of court and keep things simple for their family.
4. They believe myths about trusts.
People think trusts are only for the super-wealthy. Or that they will lose control of their assets. Or that it’s too complicated. But a Living Trust is actually about keeping control—it lets you decide what happens to your stuff, not a judge.
5. They go DIY or download a form—and think they’re done.
This is a big one. Many people download a five-page “Living Trust” off the internet, make a few edits, get it notarized, and feel proud of themselves. But it’s not funded. It’s missing key legal language. It doesn’t protect against taxes, divorce, creditors, or incapacity. That’s not a plan—it’s a false sense of security.
6. They underestimate how quickly life can change.
People think they’ll have plenty of time to “get around to it.” But incapacity, illness, or even death doesn’t wait. Once something happens, it’s too late; you can’t sign documents retroactively. That’s when families end up in court, fighting over guardianships or who gets the house.
Bottom Line
The most common, and usually the most vital kind of trust is a Living Trust, created as part of an Estate Plan to benefit you and your family even when you are alive. Read more about Living Trusts here. Most people don’t have a Living Trust because they don’t understand what it is, how powerful it can be, or how much easier it makes life for their loved ones.
A good Living Trust isn’t just a legal tool. It’s peace of mind. And once families understand what it actually does—and what can go wrong without one—they usually say the same thing:
“Why didn’t I do this sooner?”
A Living Trust isn’t just a legal document. It’s a tool to protect your family, your assets, and your legacy. But only if it’s done right.
A savvy lawyer will know what to include, what to leave out, and how to keep your trust flexible enough to work for decades. If you’re not sure whether your trust is doing its job, get a second opinion. Regardless of your income or assets, do not use a DIY form or robot on the internet. It will not ask all the necessary questions and likely cannot deal with your specific situation.
This is too important to get wrong.
What We Do at CunninghamLegal
The lawyers and staff at CunninghamLegal help people plan for some of the most critical times in their lives; then we guide them when those times come. Make an appointment to meet with CunninghamLegal for Estate Planning, Tax Planning, Business Law, and much more.
We have offices throughout California and offer in-person, phone, and Zoom appointments. Call (866) 988-3956 or book an appointment online.
Many clients tell us they find our legal webinars and YouTube channel incredibly helpful and informative. We cover a wide range of issues related to Estate Planning, as well as retirement, taxes, Trusts, probate, living in California, retiring in California, asset protection, and many other topics.
We look forward to working with you!
Warmly,
James L. Cunningham Jr., Esq.
Partner, CunninghamLegal
At CunninghamLegal, we guide savvy, caring families in the protection and transfer of multi-generational wealth.
