A trust is the foundation of a strong estate plan, but it is useless without proper funding. Signing the trust document is not enough; the legal transfer of assets must occur. An unfunded trust can lead to costly probate, tax issues, and distribution that violates your wishes. Read on as we explore common trust funding mistakes, their potential consequences, and how an experienced Rockland County Estate Planning Attorney can assist you.
What Does It Mean to “Fund” a Trust?
Many breathe a sigh of relief once their estate plan is complete and may then overlook the essential step of funding their trust. Funding your trust is straightforward, although the method varies depending on the asset type. It is crucial to understand the proper procedures for placing each specific asset into the trust and to consult with your attorney throughout this process. Almost any type of asset can be transferred into a trust. This commonly includes:
- Real estate
- Financial accounts
- Stocks and bonds
- Intellectual property
- Personal property (such as art, jewelry, and collectibles)
Essentially, funding a trust means transferring assets into the trust’s ownership after the trust document has been created. This renders the trust legally functional, enabling the trustee to manage the assets according to the terms you have set.
What Happens If You Fail to Fund Your Trust?
The primary objective of a living trust is to bypass probate. If assets are not correctly transferred into the trust’s name, they will still have to go through the probate process. This results in delayed distribution and higher administrative costs. Errors in asset titling or beneficiary designations can lead to significant unforeseen tax liabilities, such as unnecessary estate taxes or capital gain taxes. Furthermore, without proper funding, your intentions for asset distribution may not be legally enforceable, potentially leading to disputes among your heirs.
A poorly funded trust cannot safeguard your assets from creditors or guarantee that your appointed trustee will manage them as you intended. This lack of proper funding leaves your estate exposed to potential legal challenges.
What Are Common Trust Funding Mistakes That Can Undermine Your Estate Plan?
If bank accounts, real estate, investments, and other property are not legally moved into the trust, they remain outside the trust’s control and will likely be subject to the costly and time-consuming probate process. It should be noted that merely signing a trust document is insufficient. Assets must be formally retitled in the name of the trust, like updating the home deed or bank account registration, for the trust to exert legal control over them. Assets like IRAs, 401 (k)s, and life insurance policies are typically transferred via separate beneficiary designations and will bypass the trust entirely unless these designations are specifically updated to name the trust as the recipient, or align with the trust’s instructions.
In addition, proscrstation in fully funding the trust leaves assets vulnearble ot proabe and creates significant holes in your otherwise carefully crafted estate plan. Any real estate that you own in other states must be specifically transferred into eh trust to prevent those particular assets from being subjected to probate proceedings in that separate state jurisdiction.
Finally, life-altering changes such as marriage, divorce, or the birth or death of a beneficiary necessitate an immediate review and update of both the trust document and the asset funding strategy to ensure the estate plan remains current and accurately reflects your wishes.
At The Lauterbach Law Firm, we offer dedicated support to ensure your trust is not only established effectively but also maintained and updated over time. Our legal team is committed to helping you avoid expensive errors and significantly reduce the likelihood of future disputes or administrative delays. Contact our firm today to arrange a consultation.
