Funding of a trust is crucial to effective estate planning. Without proper funding, a trust is merely an expensive pile of paper. In re Living Trust, unpublished per curiam of the Court of Appeals, issued January 29, 2015 (docket no. 316892) illustrates the negative effects of improper funding.
Reading between the lines we see that the case dealt with the home of a married couple. The trust was intended to provide that the spouse could live in the home but after her death, it would be distributed according to the trust. The home at the time of the husband’s death was owned by the couple as joint tenants by the entireties (which is the normal manner that married couples own property). The challenge or fight, in this case, was that the couple had children that were not of the marriage. The trust evidently provided that the house went to the husband’s heirs. However, property owned as joint tenants by the entireties bases to the surviving spouse then to her heirs.
The husband’s children argued that the trust shows the intent of the parties. In 2008, an individual updated his 1981 trust to read:
The Marital Trust shall consist of my primary residence . . . at the time of my death . . . .
But, the title to the house was never changed to the trust.
So what did the court do? The house passes to the heirs of the wife. The Court found “that the marital home was never included in the trust and never ‘passed’ to responded because it was owned by respondent before and after decedent’s death.” Furthermore, the wife and her heirs were also entitled to more money because the house was not part of the trust.
This failure to fund a trust likely cost the husband’s heirs 100’s of thousands of dollars. Plus all the time and money spent fighting in court and taking it to the court of appeals. Furthermore, if there was any relationship between the children, it is likely destroyed as a result of this case.
What can you do to avoid this? First, make sure to disclose all assets to your estate planning attorney. We request that clients bring documents for all their accounts so, if we are doing a trust, we can make sure that the trust is funded. Second, have your estate checked every so often to make sure that all your assets are properly titled, and your trust continues to provide for the people you want it to provide for?