Ramifications of Unfunded Trusts

SHJ062816_Unfunded_Trusts_Blog_ImageFor many, a Revocable Living Trust is created as part of an estate plan to determine who will inherit assets and property, rather than relying on a will or owning assets jointly with either a spouse or heirs. It is a type of trust that is established during the trust maker’s lifetime and can be amended as long as the trust maker is alive and well. Assets within the trust can be managed, invested and spent for the trust maker’s benefit during his/her lifetime. At death, a trustee steps in to manage and distribute the property within the trust as outlined in the trust agreement created by the trust maker.

Often, a Revocable Living Trust is established to avoid probate at death or conservatorship if an individual is incapacitated for any period of time, but also to maintain some control over the assets after death through a trustee. Creating the trust document with an estate planning attorney is the first step, but the trust will not function properly if it is not funded. In order to fund the trust, the trust maker must transfer assets titled in his/her individual name and retitle them into the name of the trust or designate the Revocable Living Trust as the primary or secondary beneficiary, when applicable.

If a trust remains unfunded at death, assets and property will not be distributed following the guidelines of the trust agreement. It is likely that the assets will be subject to probate, which defeats a main benefit in establishing the trust. Secondly, any assets held outside the trust cannot be managed by your designated trustee and therefore may not be passed to your intended beneficiaries since they do not fall under the control of the trust. You may work with your attorney to establish what assets should be titled in the name of the trust and how to best transfer them, but ultimately it is your responsibility to fund the trust to ensure your wishes are carried out.

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