For certain clients, a Trust of some kind may be essential for a variety of reasons. However, many of them fall victim to one common mistake:
“Once I sign my documents, everything is done, and I can live peacefully knowing that my affairs are in order.”
Unfortunately, the truth is they are only a fraction of the way there. Whether planning with a Will that creates a Testamentary Trust or a Revocable “Living” Trust, it is extremely important that the client’s assets be funded. Otherwise, the plan will not work as they were told.
A Trust Must Be Funded to Work
For a Trust to work, it must be funded – that is, the assets have to actually be in the Trust or somehow associated with the Trust. For example, brokerage accounts should probably be titled in the name of the Trust and the Trust may need to be either the primary or contingent beneficiary of life insurance policies and retirement plans.
But Will It Be Funded?
A client has two options for funding the trust: have the attorney handle it for them, or follow the instructions provided to fund it themselves. But, the reality for clients who choose to do it on their own is that the vast majority simply do not follow through. Life gets in the way so they delay doing it and the Trust never gets funded. And because it is not funded, the client’s plan is not going to function as the client was told.
The True Cost is Often Misleading
I think most clients, even if they agree to fund on their own, really don’t understand the significance of the matter. And if the attorney ever has a claim made against them for failing to fund, the attorney can wipe their hands clean, responding with “Well the client signed a document stating that he agreed to do the funding.” Client “A” walks out of the attorney’s office with a plan funded by the attorney and Client “B” walks out after being told that he needs to fund it. Both clients think they got the same thing!
An unfunded Trust is like a car that does not run. No one goes to a dealership and knowingly buys a car that does not run. Often times, a client unknowingly buys a trust that does not work, and it’s not discovered that it does not work until after the client dies, at which point it can’t easily be fixed.
Most attorneys do not fund trusts, but generally we do! This is a big factor that sets us apart from other firms. For most of our plans involving Trusts, we do the legwork. We better ensure your plan will work like we tell you it will.
What’s the point in paying for an estate plan if it’s not going to work?
Contact Hamrick Law to fix your plan!