The Dangers of an Unfunded Trust: A Case Study
Recently we had the pleasure of working with an older couple on their relatively straightforward estate plan. We enjoyed going through our usual planning steps with them and came up with an estate plan that suited their needs and the needs of their family very well. But as it would turn out, their unfunded trust would add financial and emotional strains to their son after they passed.
Our client-friends had a “taxable” estate (enough to incur Massachusetts estate taxes) made up of a few parcels of real estate, a limited liability company, as well as brokerage, bank, and IRA accounts. The plan would have avoided probateProbate can refer to the process of settling the estate of a deceased person. Read More and saved hundreds of thousands in taxes.
After they signed their documents, they had some homework, which they had eagerly taken on: they needed to sign forms from various institutions where they had accounts, which would change the owner or the beneficiary from themselves to the trust itself.
We completed the transfer of their real estate and the assignment of the LLC properly with them, but unfortunately, their account ownership and beneficiary change forms were never completed. Thus when they died, they still owned these assets, making the estate vulnerable to probateProbate can refer to the process of settling the estate of a deceased person. Read More, and leaving their son with an unfunded trust.
Outcomes of an Unfunded Trust
As sometimes happens, these clients passed away within a year of one another. On top of the loss that their son now has to deal with, he also has the burden of going through probateProbate can refer to the process of settling the estate of a deceased person. Read More of his parents’ assets and the unfunded trust. We will perform much of the work for him, but he still will have to shepherd the estate through this frustrating process and pay thousands more between court charges, costs, and fees than he would have with a fully funded trust.
Their son may now also have to pay an estate tax, something which could have been reduced or avoided altogether if his parents’ trust had been properly funded. One of his regrets was not getting involved more with his parents’ plan.
ProbateProbate can refer to the process of settling the estate of a deceased person. Read More is a long, often expensive process that their son now has to engage in, and unfortunately is one that could have been avoided had their trust been properly funded.
There are many steps that go into having a fully functioning estate plan.
With all the pieces put in motion for things to run smoothly for your family and heirs once the sad day of your passing comes. A seemingly small, but crucial, step is the funding of your trust.
What Is Funding?
You fund your trust by transferring your assets from you to your trust. One example of this is deeding your property from you (or you and your spouse) to the trust itself. Another step in funding your trust is changing beneficiary designations and transfer on death designations on your bank accounts to your trust.
These may seem like small, unimportant steps. It’s still your name on the deed, right? It’s still your spouse’s name as a beneficiary on your accounts, right? So, is it really a huge deal if it isn’t switched over to your trust? The truth is, failing to fund your trust properly can cause timely, costly issues down the road for your family.
Conclusion
It is important to follow through on completing every aspect of your estate plan. A competent attorney can set up all the documents you could ever need for a comprehensive estate plan, but there are certain steps that you must remember to make in order to hold everything together.
Read our article 8 Symptoms of an Impending Failure of Your Trust or Estate Plan here.
