John and Jane Grantor (not their real names) had four adult sons. The Grantors wanted to leave their house and most of their residuary estate to son Jimmie, who lived with them. They filled in the blanks of a do-it-yourself living trust software package and signed the Trust Agreement.
Then they both died.
During two expensive, lengthy probate procedures, their house was ordered sold and Jimmie was forced out. In accordance with the laws of intestate succession, the net proceeds of the estate were divided equally between the four sons. John and Jane’s wishes were not carried out.
What went wrong? The Grantors hadn’t transferred any of their liquid assets or deeded their house into the names of the trustee of their trust. Since none of their assets was held in trust, the entire estate was subject to probate. They hadn’t even executed pour over wills, which would have provided for distribution of non-trust assets in accordance with their wishes.
Forming a living trust is only part of the estate planning process. The trust must be properly funded. Any asset not “in the trust” may be subject to probate.
Think of a living trust as a box in which to put your assets. Anything “in the box” won’t be subject to probate and (depending on the way the trust is drafted) may even be insulated from significant estate tax liability. If the trust is never funded, all you’ve done is create an empty box.
No trust agreement funds itself. Funding should be discussed with the attorney who prepares the trust agreement, and should be accomplished promptly once the trust is formed.
Jerry Kessler practices law in Santa Clarita. You may call him at 661-255-1001.