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Could an Unfunded Trust Open the Door to Estate Litigation?

Sept. 19, 2016

If an individual set up a living revocable trust, including naming beneficiaries of the trust residue, yet failed to fund the trust, the designated beneficiaries might be motivated to bring litigation against the estate.

Like a will, the trust may designate where certain assets should be transferred after the trustor’s passing. Unfortunately, a document intended to create a living revocable trust will not function properly if it was not funded. In fact, it may not have much more legal effect than a simple piece of paper.

To be sure, there may be some safeguards. For example, if an individual also created a will and a designated a financial power of attorney and/or personal representative as part of his or her comprehensive estate plan, that individual may be able to effectuate the individual’s intentions.

The safest approach, of course, is to consult with a law firm that focuses on estate planning and litigation to minimize the risk of a lawsuit. Forming a checklist can be helpful in ensuring that a trust gets funded. Ownership of each asset must be changed from the trustor’s individual capacity to that of trustee of the trust. In the case of a married couple, the ownership should list them as trustees of the jointly named trust.

Each asset may have its own designation procedures. In the example of bank or brokerage accounts, an individual will likely need to go in person to the bank and sign signature cards or other forms. The registration contacts listed for each assert should be consulted to ensure that all procedures are followed.

Finally, the trust document should be signed and dated to ensure proper record keeping. That date may be referenced when re-titling assets, as well. The trustor should also take care to update all beneficiary designations. A generic form can be used if the individual asset, such as an IRA account, does not have one.

Source: FindLaw, “Living Trust Information,” copyright 2016, Thomson Reuters