28 May Why Your Living Trust Might Fail

The Critical Importance of Proper Funding

“I couldn’t believe my father paid $4,000 for a trust that didn’t work.”

I still remember my friend, Amy’s, words as she told me her heartbreaking story.  Her father had passed away and had a living trust prepared for their family to avoid probate.  She was the trustee and was responsible for handling all the affairs of her father’s estate and making sure all his assets were distributed properly after he passed. 

Her father had gone to a well-known law firm for his estate planning.  Given the firm’s reputation and ubiquitous name, he thought that, alone, guaranteed everything in his estate plan would work properly.

After he passed, Amy became the trustee.  When she began trying to transfer her father’s home, bank accounts, and other assets as he’d intended in his trust, she was shocked at what she found.  

None of his assets were in his trust.

The trust was completely empty.  The trust was not funded.

The Cost of Getting It Wrong

Her father’s unfunded trust meant she and the family would need to go through a lengthy and expensive court process (i.e. probate) to administer his estate.  The family ended up spending over $60,000 on a probate process that took 18 months and took so much of Amy’s time it felt like an unpaid part-time job.

As an estate planning lawyer, I’ve heard many stories of families who have gone through the painstaking process of setting up a living trust, believing they’ve secured their future and protected their loved ones, only to find out the trust was not set up properly.  An improperly structured trust can fail in many ways including poor drafting or unclear instructions.  But one of the most common ways a trust can fail is simply because it isn’t funded.

What Does It Mean to Fund a Living Trust?

Think of a trust like a safety deposit box.  You work with your estate planning lawyer to create that box (the trust), the instructions on who has access to it, the conditions on when and how they have access, and more.  But after you and your lawyer plan all of that, it’s still just an empty box.  You need to place things in the box so that they’re protected by the box.  The placing of things into the box is the funding of your trust.

But this is where it can get complicated.  With a safety deposit box, you put things in it by physically placing them in the box.  In contrast, funding your trust is not so easy.  The method of transferring your assets into the trust is different depending on what type of asset it is.  In general, the process involves changing the title of your assets from your individual name to the name of your trust. If you have bank accounts, real estate, investments, or other valuable assets, each of these must be legally transferred into your trust. Only then does the trust hold and manage these assets according to your wishes.

An Unfunded Trust:  A False Sense of Security

An unfunded trust is an empty box.  A thick stack of papers.  You might have paid thousands of dollars to have it drafted.  But without funding, it does nothing to protect you or your family. In fact, an unfunded trust can be worse than having no trust at all. Why? Because it gives you a false sense of security.

You may believe your assets are safeguarded and that your estate will avoid probate, but in reality, without funding, your assets remain outside of your trust and unprotected from probate court.  This means upon your passing, your estate will still need to go through the lengthy and often costly probate process.

Additionally, the very protections and instructions you set out in your trust document won’t come into play, leaving your family in a difficult and unexpected situation.

Why Most Law Firms Fall Short

Many estate planning law firms draft trusts but that’s it.  They do not help with the funding of your trust.  How do I know this?  Because prior to starting my own law firm, I worked at some of these firms and have confirmed this is still how most traditional law firms work.   

Why don’t most law firms handle funding?  In short, they consider it “not their job.”

They consider the drafting of the trust to be “legal work” and the funding of the trust to be “non-legal” work and the client’s responsibility.  They hand you a beautifully crafted document, wish you luck, and send you on your way.  The better law firms make a point to emphasize to you that you must fund your trust for it to work, but many don’t even do that.  They leave you thinking that once you’ve signed your trust, you and your family are set for life.

Unfortunately, this leaves you with the monumental task of ensuring every single asset you own is properly transferred into your trust.  This is a complex and often tedious process, requiring changes in the legal title, coordination with financial institutions, and the re-recording of deeds. Without the proper guidance and support, it’s easy for critical steps to be overlooked.  In my experience, people not experienced in dealing with this process, like our law firm is, often get frustrated and forget to follow up or give up altogether on the funding process.

Our Commitment to Comprehensive Estate Planning

At our law firm, we understand that a living trust is not complete without funding. That’s why we go above and beyond just drafting your trust. We offer to help you every step of the way to ensure that your trust is fully funded. From coordinating with your financial adviser, to transferring titles and recording deeds, we handle the heavy lifting, ensuring that your assets are properly aligned with your estate planning goals.

Don’t Let an Unfunded Trust Jeopardize Your Family’s Future

An unfunded trust can leave your family vulnerable and your estate plan in shambles. Don’t let the time and money you’ve invested go to waste. Ensure your living trust is fully funded and truly protects your family’s future.

Take the First Step

Take the first step towards securing your legacy by scheduling a 15-minute phone consultation here.