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10 Mistakes to Avoid When Creating a Trust in North Dakota - Thompson Law, PLLC

Thompson Law, PLLC

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10 Mistakes to Avoid When Creating a Trust in North Dakota

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Mistakes trust North Dakota

Creating a trust can be one of the most effective tools in your estate planning arsenal. In North Dakota, as in other states, a properly drafted and executed trust can allow you to bypass probate, preserve privacy, provide for your loved ones with precision, and protect assets from certain creditors or spendthrift beneficiaries; however, establishing a trust is not as simple as filling out a form or downloading a template. There are critical steps involved in creating and maintaining a trust, and overlooking even one of them could cause confusion, delays, or even litigation after your death. An attorney at Thompson Law explain 10 common mistakes people make when creating a trust in North Dakota to help you avoid them and ensure that your estate plan accomplishes what you intend.

  1. Failing to Fund the Trust. Arguably the most common and consequential mistake people make is failing to fund the trust. When you create a trust, you are essentially creating a legal entity that holds title to specific assets; however, the creation of the trust agreement alone is not enough. For the trust to control any assets, you must formally transfer ownership of those assets into the name of the trust. In North Dakota, this typically involves changing the title or deed on real estate, updating financial account ownership or beneficiary designations, and retitling vehicles or other titled property. If you neglect to complete this process, your trust may exist in name only, with no real authority over your property. That means your assets may still be subject to probate, which defeats one of the main purposes of establishing a trust in the first place.
  2. Not Reviewing and Updating the Trust Over Time. Creating a trust is not a one-time event. As your life changes, your trust may need to change with it. Marriage, divorce, the birth or adoption of children or grandchildren, changes in financial status, and the death of a beneficiary or Trustee are all events that may require you to amend your trust. North Dakota residents sometimes forget that a trust created twenty years ago may no longer reflect current circumstances. Failing to review and update your trust periodically can result in outdated or impractical instructions that do not serve your family’s best interests. Regular reviews, preferably every few years or after a major life event, can help ensure that your trust continues to operate in accordance with your goals.
  3. Choosing the Wrong Trustee. The Trustee is the person or institution responsible for managing the assets in your trust and ensuring that the terms of the trust are followed. This includes keeping accurate records, filing necessary tax returns, making distributions to beneficiaries, and sometimes making discretionary decisions. Selecting an inappropriate Trustee, someone who lacks financial knowledge, organizational skills, or sound judgment, can lead to mismanagement or even intentional misconduct. You may want to consider naming a professional fiduciary, such as a bank, trust company, or attorney, particularly if your trust is complex or if there is potential for conflict among your beneficiaries.
  4. Overlooking Potential Tax Implications. Although North Dakota does not currently impose a state-level estate or inheritance tax, federal estate tax laws still apply. If your estate exceeds the federal exemption threshold, which is subject to change annually, your estate may owe significant taxes. Some types of trusts, such as irrevocable life insurance trusts or charitable remainder trusts, are specifically designed to reduce estate or income taxes. Others, such as revocable living trusts, do not offer tax advantages but serve other important purposes. Without proper planning and guidance, you might miss opportunities to minimize taxes or, worse, create unintended tax consequences for your estate or beneficiaries.
  5. Drafting Vague or Ambiguous Terms. Your trust should be specific and clear about how assets are to be managed and distributed. Vague language can lead to disputes among your beneficiaries or make it difficult for your Trustee to carry out your wishes. For example, saying that a beneficiary should receive distributions for “health, education, maintenance, and support” is standard language, but if you want distributions to be limited or tied to specific milestones, such as graduating from college or reaching a certain age, you need to clearly state that. In North Dakota, as in other jurisdictions, courts give effect to the Grantor’s intent, but if that intent is unclear, your trust could be challenged or administered in a way that you did not foresee.
  6. Failing to Plan for Incapacity. A revocable living trust can serve not only as a mechanism for distributing your assets after death but also as a tool for managing your affairs if you become incapacitated. If you become unable to make financial decisions due to illness, injury, or cognitive decline, the successor Trustee you name can step in and manage the trust assets on your behalf, often without the need for a court-appointed conservator. People often overlook this planning opportunity, focusing solely on what happens after death and ignoring the very real possibility of incapacity during life.
  7. Not Communicating with Beneficiaries. It may seem uncomfortable, but communicating with your beneficiaries about the existence and basic terms of your trust can reduce confusion and potential disputes down the road. You do not necessarily need to disclose every detail, but letting your beneficiaries know that you have created a trust and explaining your overall goals can foster understanding and reduce the risk of conflict later. Some people prefer to keep all financial matters private, but the consequences of silence can include litigation, hard feelings, or even accusations of misconduct against your Trustee.
  8. Not Coordinating the Trust with Other Estate Planning Documents. A trust does not operate in isolation. It should work in harmony with your Will, Powers of Attorney, and beneficiary designations. For example, if your retirement accounts or life insurance policies name individual beneficiaries who differ from the beneficiaries of your trust, those assets will pass outside the trust and may result in unequal distributions. Similarly, your Will should include a “pour-over” provision to capture any assets not titled in the trust and direct them into the trust upon your death. Failing to coordinate these various documents is a mistake that can lead to confusion, inconsistencies, and even litigation.
  9. Failing to Include a Pour-Over Will. A pour-over Will is a simple but essential document that works in tandem with a revocable living trust. It serves as a backup to transfer any assets that were not formally titled in the name of the trust during your lifetime into the trust upon your death. Without a pour-over Will, those leftover assets could be subject to intestate succession laws in North Dakota, meaning they may be distributed according to a statutory formula instead of according to your wishes. A properly drafted pour-over Will can ensure that your entire estate is eventually governed by the terms of your trust, even if you inadvertently forget to transfer a bank account or piece of personal property.
  10. Trying to Create a Trust Without Legal Assistance. In the age of online templates and DIY estate planning kits, it is tempting to create a trust on your own to save money; however, the laws governing trusts are complex, and what works in one state may not be valid in another. North Dakota has specific legal requirements for creating a valid trust, and even a small error in wording or execution can invalidate the entire document. Moreover, trusts must be tailored to fit your specific financial situation, family dynamics, and long-term goals. Using a boilerplate document could result in a trust that is incomplete, unenforceable, or fails to achieve your objectives. Working with an experienced estate planning attorney ensures that your trust is valid under North Dakota law and structured to meet your individual needs.

Can We Help You Avoid Making Mistakes When Creating Your North Dakota Trust?

Please join us for an upcoming FREE seminar or webinar. If you need assistance to avoid making mistakes when creating your North Dakota trust, contact a North Dakota and Minnesota estate planning attorney at Thompson Law by calling 605-362-9100 to schedule an appointment.

Raymond German, Estate Planning Attorney
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