Subtitle:  Self-Funding Your Trust? Why Mess Up a Perfectly Good Estate Plan?

As I mentioned in my blog of October 16th (link), one of the reasons most trusts don’t work is that they haven’t been properly funded. Funding is the process of changing ownership of your assets to the name of your trust, or designating your trust as beneficiary. Assets that remain un-funded at death could be subject to probate in order to get them transferred to the rightful beneficiary.

Most lawyers don’t like to provide funding services because it is a tedious, time-consuming, detail-intensive project. And many lawyers, to get you to buy their trusts, don’t quote a high enough fee to enable them to provide funding services. Face it – the attorney has to make it work financially to provide that service, and most clients want their estate plans cheap. So instead of facing up to the actual cost of doing the funding now, the attorney sells you a cheap pile of documents, including an un-funded trust, and often doesn’t even explain the consequences – or the cost – of an unfunded trust to their clients. There are some less scrupulous attorneys who put their names all over the client’s documents hoping to handle the probate and trust administration after death, so they aren’t particularly concerned about whether or not the trust is funded. That’s a plan that doesn’t work!

An often-used middle ground is for the attorney to explain the importance of funding your trust, and to give you a pile of forms and brief instructions to get it done yourself. That gets the attorney off the hook because at least they tried to help you understand the significance of funding and gave you some forms to help. The problem is that most people will never look at the forms or do anything about funding.  It’s amazing to me how many clients bring in trusts prepared by other attorneys, and the funding forms are un-touched and nothing has been done.  Most people, left to their own devices, don’t understand what needs to be done or how to do it, and just don’t get it done.

I met with a client recently whose spouse had just passed away. When the couple hired me to prepare their trust, they didn’t want to spend the extra money to have me fund it for them, and insisted that they could and would fund it themselves. Needless to say, when I met with the surviving spouse after one of them unexpectedly died, the trust was almost completely un-funded. Fortunately, we can solve most of the issues by getting it funded now, but the survivor will miss some opportunities for the asset protection benefits that would have come with a properly funded trust.  And if the survivor doesn’t get the assets funded now, there will be a probate after the survivor’s death.

This isn’t the first time this has happened in my practice. I have had a few clients over the years who refused to pay for funding services, my pleadings notwithstanding.  Most eventually came back in, confessed that they never got it done, and asked to me to help them do it. In cases where no one has died or become incapacitated, we can fix it. But is it worth the risk?  Who go buy a car without any tires?  It won’t go anywhere!

Another hazard of self-funding is the risk that either you will give incorrect instructions, or that the company you are working with won’t follow your instructions.  I once had a client who signed a beneficiary designation on a life insurance policy that stated the name of their trust incorrectly.  After the insured died, a claim was made by the trust using its correct name, and the insurance company refused to pay until, several thousand dollars later, we were able to get a court order approving payment to the trust by its correct name.  Another insurance company took the correct instruction given by the client, but changed the name of the trust when they entered it in to their system, so now it needs to be corrected. If funding is handled by, and coordinated through, the attorney, those mistakes should be caught and corrected, saving everyone time and expense.

If you invest good money into creating and implementing an estate plan that works, don’t scrimp by thinking you can save money by doing the funding on your own. That would be like hiring a doctor to diagnose your illness and then performing the needed surgery yourself. That generally doesn’t have a good result.  Get it done right the first time by hiring a professional to help you and make sure it gets done professionally and correctly.  If an estate planning attorney doesn’t offer that service, they probably are not the right attorney to hire.

Is your trust funded? If you funded your trust when you first signed it, have you kept the funding up to date? Do you title new assets and accounts in your trust, or name it as the beneficiary of new life insurance policies? If you have a trust that hasn’t been properly funded, or if you want to create and implement new fully funded trust, we can help. To set up a free initial consultation to discuss your estate plan and make sure your trust is fully funded, call us today at (801) 263-0132.

We help clients find peace of mind about the future by creating and implementing estate plans that work!