By Attorney Dan Vu
Too many times I have seen new clients with a trust they had created previously but never funded. That is, they never placed any assets in the trust and the trust owns absolutely nothing. What too many don’t understand, including attorneys, is that funding the trust correctly is just as important as drafting your trust correctly. You may have heard about the website Legal Zoom being sued by a customer who used the website to create a trust for her uncle. She helped her uncle create the trust using Legal Zoom but had no success in funding the trust. The trust remained unfunded when her uncle died. She ended up having to hire an attorney who had to convince the court and the financial institutions to allow the post-death funding of the trust – no easy task, which cost the estate thousands of dollars.
But its not only Legal Zoom, many law firms and attorneys draft trusts for their clients then hand the trusts to their clients instructions for their clients to “fund the trust”. Funding the trust means that ownership of assets (property they own including deeds, titles, bank accounts, stocks, bonds, mutual funds) is transferred from them individually to the trust. These attorneys and law firms are forgetting that many of their clients do not know how to fund their trust or may not know what assets to fund. Moreover, even if the attorneys explain to the clients how to fund the trust, some clients will never get around to doing what is necessary. The result is that they leave their trust unfunded. This vital error makes the trust, for all intents and purposes, useless. It is merely a large stack of paper sitting on their desk. I might also add, a large useless and expensive stack of paper.
An unfunded trust can have unintended consequences. An unfunded trust does not protect the client’s assets from probate. Further, when the client’s assets are not owned by the trust, no benefits of the trust apply to those assets. That is, no tax advantages will apply and of course, instead of your trust determining your distribution it will be your will, or if you don’t have a will, the laws of the state in which you reside.
If you are taking the time and expense to set up a trust, make sure you do this with an attorney or a firm that will help you fund your trust. Ask them how they will help you do this. Will they just give you advice or will they actually taking the initial steps needed to transfer your assets into the Trust. Don’t walk away from your attorney’s office with what a large, useless and expensive stack of paper: walk away knowing that you will have a fully funded Trust.
