New York Estate Planning & Elder Law Blog
Failing to use a living trust as part of one’s estate planning is one of the most common mistakes that local residents make. Relying solely on a will or (even worse) the intestate rules of succession, means that a family is forced to endure complex, stressful, and conflict-inducing hoops to pass on assets and otherwise handle end of life affairs. Trusts are far superior methods of ensuring one’s wishes are carried out in as direct a manner as possible.
However, as a Yuma Sun article this week reminded, creating the trust is only half the battle–it must also be funded.
What does it mean to fund a trust?
Essentially, funding simply refers to titling assets in the name of the trust so that the trust itself controls those assets. It might be easiest to think of it (roughly) as the difference between opening up a bank account and actually putting money into that account. Those are two different steps, and both must be taken.
Unfortunately, many familie still find themselves in tough situations–even though they created a trust–because that trust was not funded properly. In those cases, settling matters is quite complex: some assets may pass directly via joint tenancy rules or beneficiary designations while others must still go through probate.
Perhaps the most high-profile example of this involved none other than pop superstar Michael Jackson. Jackson had a mammoth estate, with assets worth hundreds of millions of dollars. A trust was created by Jackson, but it was never properly funded. At the time of his death, therefore, his estate was thrown into disarray as courts tried to sort out his wishes with an incomplete plan. The battle is still raging, as different parties seek to take their share of his estate. Because the trust was not funded, the court was forced to get involved–opening the door for others to come out of the woodwork and seek to complicate matters.
It is critical that local community members be aware of this straightforward, but essential step. Experienced estate planning attorneys will explain all of the details of your situation. In most cases, this involves titling assets (house, car, stocks) in the name of the trust. Yet, there are some exceptions, with things that should not/cannot be moved into the trust. This include retirement accounts (tax consideration should be analyzed) and life insurance (though at times it is helpful to place this in an irrevocable trust for estate tax purposes.
Also, the need to ensure proper funding means that updating of estate planning documents is key. If new assets are purchased or acquired, that needs to be taken into account. Failure to do so may result in problems down the road.
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