The Biggest Mistake People Make After Creating a Living Trust!

Dear Mr. Miller:

About ten years ago, my husband and I paid an attorney to create a Living Trust. We signed all the documents and put them in a safe place.

Recently, a neighbor told us that many trusts don’t work because people never “fund” them. I don’t really understand what that means. We thought signing the trust was all we needed to do.  Can a trust really fail if it isn’t funded properly?  Did our Attorney screw up?

Trusting but Confused

Creating the Trust
Funding the Trust
Think of the Trust as an Empty Box
Why This Happens
The Assets Most Often Overlooked
And then there are Forgotten Assets
Another Common Problem–Life Changes
Maintenance is Critical
Funding Mistakes are Usually Correctable
What to Do Now

Dear Trusting:

Your neighbor may have used a dramatic word when he said a trust can “fail,” but he is absolutely correct that one of the biggest mistakes people make is believing their estate planning is complete once they sign the trust documents.

Creating the Trust:  In reality, creating the trust is often only the first step.  After the signing, some attorneys give you forms to take to your bank, stock broker, etc., some give you instructions, and, maybe, some don’t do anything at all.  And, of course, some clients never carry out the instructions.

Funding the Trust:  So the second step—one that many people overlook—is making sure the right assets are connected to the trust. Estate planning attorneys often refer to this process as funding the trust.  Unfortunately, many people spend considerable time and money creating a Living Trust and then never finish the job.  See this article for what may occur in this situation.  

Think of the Trust as an Empty Box:  Imagine buying a large safe to protect your valuables.  You install it, lock it, and admire it.  But then you leave your jewelry, cash, and important documents sitting on the kitchen counter.  The safe itself may be excellent, but it cannot protect items that were never placed inside.  A Living Trust works much the same way.

The trust document creates the legal structure. Funding the trust places assets under that structure’s protection.  Without proper funding, some assets may still have to pass through procedures that the trust was designed to avoid.

Why This Happens:  Most people are relieved once the signing appointment is over.  The documents have been signed. The notarizations are complete. The estate plan is in place. Understandably, people assume the project is finished.  But ownership of assets does not automatically change simply because a trust document was signed.  Bank accounts, brokerage accounts, real estate, and other assets often require additional steps.  Sometimes those steps are completed immediately. Sometimes they are delayed. And sometimes they are forgotten entirely.  Years later, family members discover that the trust exists, but important assets were never coordinated with it.

The Assets Most Often Overlooked:  In my experience, several types of assets are commonly missed.  People open new bank accounts after creating their trust and forget to title them consistently with their estate plan.  CDs are frequently renewed or moved from one institution to another. During those changes, ownership may not be coordinated with the trust.  Investment (Brokerage) accounts may have been overlooked during the original funding process or may have been transferred to a new financial institution later. As to real estate, a person may refinance a home, purchase a vacation property, or inherit real estate years after the trust was created.  The newly acquired property may never be transferred to the trust.

And then there are Forgotten Assets:  Old accounts, mineral interests, timeshares, and small investment holdings often escape attention because people simply forget they own them.

Another Common Problem–Life Changes:  Even people who properly fund their trusts initially, can run into problems later.  Life does not stand still.  People sell homes, buy homes, change banks, open investment accounts, receive inheritances, and start new businesses.

Maintenance is Critical:  Every major financial change creates an opportunity for assets to drift away from the estate plan.  That is why estate planning should not be viewed as a one-time event.  It is more like maintaining a house. Occasional inspections help identify small issues before they become major problems. So when does your Trust need attention?  A review may be worthwhile if:

Your trust was created more than three to five years ago.
You have purchased or sold real estate since creating the trust.
You have opened new financial accounts.
You have changed financial advisors or brokerage firms.
You have received an inheritance.
You are unsure which assets are actually connected to the trust.

Certainly this is not an exhaustive list but, rather, a start.   But, if you answer “yes” to any of these questions, it may be time for a review.

Funding Mistakes are Usually Correctable:  The good news is that funding issues are often correctable.  In many cases, a simple review can identify assets that need attention and provide an opportunity to bring everything into alignment with your overall estate plan.

Remember, the purpose of a Living Trust is not merely to have a binder full of legal documents sitting on a shelf.  The goal is to make life easier for your loved ones and to ensure that your wishes can be carried out as smoothly as possible.  Creating the trust is an important first step.  Making sure it is properly funded is what helps the plan work the way you intended.

What to Do Now:  Call us at 760-436-8832 so we can review your situation and help you bring everything into alignment.

Merwyn J. Miller, J.D., is an attorney specializing in Estate Planning, Estate Settlement, and ElderLaw.