Apr 15

Make Sure Your Assets are in Your Trust!

After your estate planning attorney has drafted a Living Trust that perfectly fits your particular needs and you’ve signed the Trust agreement, you’re done, right? … Almost. Simply signing the Trust agreement isn’t enough for a Living Trust to function properly. After the agreement is signed, your Trust must be “funded.” If you don’t do it, then your Trust will have no effect.

This isn’t anything that should greatly worry anyone working with a good estate planning attorney, as the attorney should help you. Yet, here is where things have the potential to get tricky.

Let’s say you have found a great estate planning attorney. For argument sake, let’s say that you have even hired our own Debra Leffler Streeter, the 2014 North County Bar Association President. Madam President has worked with you to fund the trust immediately (as most good attorneys will). You shake hands, part ways, and expect that everything is okay. And it is okay. Until … Story time …

We recently met with a client who created a Trust, funded the trust, and later discovered upon meeting with our attorney, that her house was no longer funded in the Trust. How in the world did that happen you might ask?

The answer is that the client had refinanced her home after having the Trust prepared. The lender required that she remove the home from the Trust. Unfortunately, the client was unaware that once removed from the Trust, the home would need to be transferred back into the Trust.

In my telling of the story there is a happy ending. We caught the mistake within her lifetime, updated her Trust, and everyone lives happily ever after. Whew!

Sadly, the real story is a little different. The client was actually the daughter. The Living Trust belonged to her mother, and the solution was going to court to fix the problem. If the error had been caught while mom was still alive, then we would not have gone to court. Preventing court involvement was a major reason for having the Living Trust drafted in the first place. This cost the family thousands of dollars and months of a delay that could have been avoided.

If you have a Living Trust you might be asking, how was she able to remove the house to begin with? How do I prevent this from happening to me?

Well, the answers are, that you can remove from or transfer into your Living Trust as frequently as you like. Why would you do that? Let’s say that you sold your house. Clearly you would want to remove that asset. A little further down the road, you buy a new home and you need to transfer that new property into the Trust.

The moral of the story is: The best advice that anyone can give to someone with a Living Trust, is to have that Trust reviewed regularly, every couple of years. Any change in the Trust, i.e. adding or removing a property, is cause for an update. This will keep your plan safe, and will also keep you up to date should there be any changes in the law that might affect you.

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