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Building wealth is only half the job. Attorney Carol L. Grant, located in Davie, Florida can assist you in protecting wealth for your loved ones and yourself. Through estate planning our firm will help you protect everything you love — family, friends, and favorite charities. For more information be sure to visit our website where you will have access to our blog, events schedule, and a complimentary newsletter subscription!
What Happens if You Neglect to Fund a Trust?
If a trust is not funded, the assets intended to be protected and directed by the trust enjoy none of the benefits intended by the estate plan. The assets instead become part of the probate estate, as if the trust was never created.
How Is a Trust Supposed to Work?
A trust is a legal entity created to serve several functions. A “funded” trust allows assets to be passed directly without probate and determines how and when the assets will be distributed for its intended beneficiaries. Some trusts are simple, created solely to pass a single piece of property to an heir. Others are extremely complex, controlling assets for multiple generations.
The grantor (also known as the trustmaker, trustor, or settlor) is the person who establishes the trust. The beneficiary is the person who receives the trust income and may even receive its principal. The trustee is the person, persons, or institution appointed to control and manage the trust for the beneficiaries.
The Unfunded Trust Owns Nothing, Therefore It Serves No Purpose.
In some cases, the estate will pay significant estate taxes as the result of an unfunded trust. Court costs will be incurred, as the asset goes through probate, shrinking the estate. Heirs will find their inheritance diminished, and the time to receive assets may increase from a few weeks to a few years.
What Has to Happen to Fund the Trust?
Funding the trust requires front-end paperwork done now to avoid back-end administration later at the most inopportune time – incapacity or death. It takes time, dedication, and often, persistence. The trust is funded when assets are retitled: the named owner of record for each asset must be the trust itself and no longer the name of the grantor as an individual.
For example, home ownership is documented by a deed or a title. John Doe, the owner of the home, must sign a deed transferring his ownership to his trust from “John Doe, a single person” to “John Doe, Trustee of the John Doe Trust.” The same goes for investment accounts and other assets. Expect financial institutions, whether investment firms or life insurance companies, to have their own required “in-house” forms, when retitling these assets. Caution should be taken when dealing with all tax-deferred plans such as IRA’s or 401k.
Complex assets require more effort. Promissory notes, business ownership (shares in a closely-held private business), and intellectual property are examples of assets needing professional assistance for retitling. If there is real estate owned in multiple states, properly retitling the real estate to a trust may avoid otherwise necessary “ancillary” probate in each state where real estate is owned. Multi-state probate is an expensive and time-consuming process.
The Successful Estate Plan Includes Completely Funded Trusts
A comprehensive estate plan often includes a last will and testament, general durable power of attorney, medical power of attorney, advance directives, and various types of trusts. If there is no last will, assets without a surviving joint owner or designated beneficiary are distributed pursuant to the provisions of the state’s law of intestacy. If there is a last will but the trusts have not been funded, the entire estate will be subject to probate.
Many people find retitling assets a tedious undertaking and neglect it. Others procrastinate until it is too late. Retitling assets is the final task of completing an estate plan, and is too important to skip.
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