If You Have a Trust, Don’t Settle for a False Sense of Security – Part II

Last week I talked about how boilerplate documents often cause trusts to fail. This week I’m going to talk about funding. Funding is the fancy legalese way of saying, “transferring assets into the trust” and it is just as important as having a solid, customized set of documents. You can have the best set of documents in the world, but if the funding isn’t done correctly you’ve just wasted a bunch of paper (not to mention your time, energy, and money).

Improper, incomplete, or nonexistent funding causes trusts to fail more often than you can probably imagine. In fact, it happens all the time. Just last week I got a call from a widow whose husband just passed away a few weeks before. The couple had set up a trust but only after the husband died did the wife realize their house had been pulled out of the trust (defunded) for a mortgage refi, but never put back (funded) into the trust. Now she is left facing probate, capital gains taxes, and a host of other problems that could have – and should have – been avoided.

Unfortunately online legal document services (and even most lawyers) don’t include funding as part of their service to clients. This means lots of people who’ve paid for a set of legal documents think their estate plan is all in order. But without properly funding the plan, it’s not worth the paper it’s written on. That leaves these unfortunate folks (and their families) with a false sense of security which catches up to them when the trustor dies and the plan fails.

So how can you avoid a false sense of security with the funding of your estate plan? First of all, talk to your preparer about funding before committing to doing your planning with them. Ask questions: How do they support clients to ensure plans are fully and properly funded? Do they charge extra to answer funding questions when they come up (as they surely will)? Do they offer the option of fully funding your plan for you? If not, will they at least prepare and file your deed transfer documents so your house – your most valuable asset – is properly funded into your plan?

Avoid document preparation services altogether as they will offer very limited funding support if any at all. And if the attorney or firm you’re thinking of doing your planning with doesn’t focus on funding just as much as they do on documents, do your family a favor and find someone who does. Also, beware the cheapest alternatives. Cheap estate planners are cutting costs (and corners) someplace, and that’s often in the area of funding. Why? Because most consumers aren’t aware of funding issues let alone educated enough about funding to demand that level of service.

Remember, getting your documents in place is only the beginning (even though that’s where most legal services and law firms stop). Don’t let them short change you. Demand that any plan they create be properly and fully funded. If they don’t offer funding as part of their service package, do not engage them to do your planning. If you do, you will likely be left with a false sense of security and your family will be left holding the bag.

If you’re going to do your estate planning, do it right. Make sure your plan documents are tailor made for your own unique situation and goals. Then make sure all of your assets are funded into the plan. You deserve a real sense of security and so do your loved ones.

To your family’s health, wealth, and happiness,