In future columns I intend to discuss many of the advantages to using a trust. I explained one of those advantages last week; that a trust can be a very effective way to pass on assets. However, if you use a trust, there is a critical step you must take or your trust could be useless.
The recent experience of a client will help me explain.
I met recently with a client whose husband passed away. She had left to her husband the details of creating their estate plan. The priority of his estate plan was to avoid using an attorney.
He had been told that a trust would help him to avoid probate (i.e. attorneys) after he passed away, so he downloaded a form from the Internet and filled it out. He even filed a copy of the trust at the local courthouse.
When he passed away, his wife came to see me, unsure of what to do next. We soon realized his efforts had not accomplished what he wanted because he failed to complete one of the most critical steps to using a trust. He did not put anything in the trust; nor had he provided a way for anything to be placed in the trust.
As powerful as a properly drafted trust can be, it can only control assets that are placed in it. This is called “funding” the trust. An empty (or unfunded) trust is useless. As a result, we had to use other means to make sure his assets passed on to his beneficiaries.
In that case, we were lucky. Although his wife needed the assistance of an attorney, the process was quick and effective and the assets ended up where he wanted them to be. Unfortunately, it is just as likely this may not have been the case. Had we been able to talk before his passing, good luck would not have been a necessary part of his estate plan.
© 2016 Steven J Wright