Trust Funding Fails – Is Your Suitcase Packed?
Jeffrey G. Marsocci
The Plain English Attorney ? Estate Planner ? Author ? Speaker
The Classic Problem With the Living Trust
The paperwork is done. It is locked away and the person begins to rest easy thinking that his/her assets and children are protected. Then they pass away, and his son, who is his successor Trustee, learns that the house wasn’t transferred into trust. Well, more likely, it was transferred out of the trust to refinance the mortgage and then never put back in. That it is going to have to go through probate to be sold.
Over time, his son discovers that his checking accounts, stocks and mutual funds, bank CD’s… none of this is in trust either. So, what IS in trust? Personal possessions, and that’s it. Nothing else. EVERYTHING ELSE has to go through probate.
And what was the purpose of spending the extra money to establish a trust so he could save his kids from probate if they end up going through probate anyway? Good question.
Unfortunately, we have had several clients come in recently to update their plans after many years, and we are discovering that the vast majority of assets are no longer in the trust. Fortunately, these clients still have time to make changes to ensure their trust is funded. Unfortunately, we have also recently had several trustees for our deceased clients’ trusts contact us only to discover that a lot of assets will have to go through probate.
Re-Titled Assets – Trust Funding Fails
When assets are not re-titled in the living trust’s name, or the pay-on-death beneficiaries are changed to work in conjunction with the overall plan, the outcome can be absolutely horrific. The process of making these changes to work with the living trust is called “funding.” The estate may be unnecessarily squandered on probate fees, tax shelters could fall apart, and his children may end up spending years trying to sort out the mess.
Getting the trust paperwork in place is an important step, but creating a living trust doesn’t stop there. Funding it is CRITICAL.
The best way I can describe the concept of a revocable living trust to my clients and making sure it is funded is to describe it as:
The sad reality is that a lot of estate planning professionals either ignore this “packing the suitcase” step, don’t know about it, or, worse, don’t care because it means more probate work for them down the road. Whether the professional actually handles the transfers or simply provides the funding instructions to the client, this is a critical part of making your trust plan effective.
So how do you properly fund your trust? What should go in trust and what should stay out? And how do you make sure your trust owns all of the assets it’s supposed to?
Funding Your Trust
Funding your trust often means that you transfer ownership of some of your assets to your trust. Technically, this means that you give up “ownership” of your assets and place them in your trust’s name instead. However, as long as your trust is drafted correctly, you are not in danger of losing control of your assets.
When you do transfer assets into the name of your trust, the title on those assets will look something like this:
“The Johnson Family Trust, dated Month, Day, Year, Bill F. Johnson and Mary T. Johnson, Trustors and/or Trustees”
Beware: Listing your assets in Schedule A in the trust DOES NOT mean that it is funded. The title of your assets needs to be transferred into the name of the trust. Don’t let anyone convince you differently. (The whole “Schedule A” myth is part of California law to have a separate, “mid-level” probate process when assets are listed in the trust’s Schedule A but the title was not actually transferred.?But make no mistake, this is still a form of probate.)
If the title of your assets is not transferred into the name of the trust, or the beneficiary doesn’t list the trust (or individuals or an IRA Trust), the trust doesn’t own the assets, it is not funded, and it becomes a testamentary trust-which is little better than a fancy Will. Your estate will go through probate in this case. So, make sure you review the language above and talk to your estate planning professional about the paperwork necessary to transfer your assets into trust.
Contact Us
If you have any doubt about whether or not your trust is funded, then please contact our office. We can set up an Annual Review Meeting to make sure your plan is still on the right track or assist with changes if not. If you are not one of our clients, then we can still assist with the funding process, so please also give us a call or email and we can assist. The office phone is 919-844-7993 and the email is?[email protected].
For a recent video on the Annual Review Meeting, please check out the YouTube video An Estate Checkup:?