Scenario: Your widowed father, who was always a do-it-yourselfer, met with his attorney and prepared an estate plan. Wanting to save a bit in legal fees, he planned on handling all the paperwork in funding the trust, including changing and refiling deeds of trust. Unfortunately, this never happened, as you and other heirs just found out - while you await probate court decisions on the disposition of your father's assets. The moral of the story: While creating a trust is a great estate planning strategy, unless your trust is "funded," it will be of little value.
How is a trust funded?
To "fund" a trust simply means to transfer assets into it. How this is accomplished depends on the nature of the property, for example, by changing the titles on any accounts, property, or beneficiary designations.
An attorney can assist you with this process to ensure everything fully complies with California state law. Your attorney can also create a pour-over will that acts as a "safety net" in case you accidently leave an asset outside of your trust (though the probate process may apply).
What happens when a trust is not funded?
If you fail to legally assign or transfer assets to your trust, those assets will not pass to your designated beneficiaries and could be subject to probate (unless you have used another technique to avoid probate). In a worst case scenario, your assets could be distributed to creditors instead of your intended beneficiaries.
In a nutshell, you may have set up a living trust with your attorney - but without funding, in reality there is no trust.
What decisions are required?
Funding a trust will involve creating an inventory of all your assets, consulting with your attorney, then preparing and filing paperwork to complete funding.
Your estate planning lawyer will be able to guide you through this entire process. He or she can explain the legal details that will affect how to correctly handle each asset in terms of including or excluding it from your trust, as well as beneficiary designations. These decisions will involve all of your real and personal property, bank accounts, safety deposit boxes, stocks and bonds, life insurance, retirement accounts, and business assets.
How to proceed?
For assistance in establishing and funding trusts, contact Mortensen & Reinheimer, PC at (714) 384-6053 or use our online contact form. You can also learn more about trusts on our website.
About the author:
Weily Yang is an attorney at Mortensen & Reinheimer, PC, an estate planning and probate firm in Irvine. Weily is a zealous advocate for individuals with special needs. His primary focus is special needs trusts and probate conservatorships together with estate planning, trust administration, and probate. He can be reached at weily@ocestateplanning.net.