{"id":37356,"date":"2021-12-14T10:00:00","date_gmt":"2021-12-14T18:00:00","guid":{"rendered":"https:\/\/ameriestate.com\/?p=37356"},"modified":"2021-12-02T13:14:51","modified_gmt":"2021-12-02T21:14:51","slug":"what-is-an-empty-trust-and-what-problems-will-it-cause","status":"publish","type":"post","link":"https:\/\/ameriestate.com\/estate-planning\/trust-administration\/what-is-an-empty-trust-and-what-problems-will-it-cause\/","title":{"rendered":"What Is an Empty Trust and What Problems Will it Cause?"},"content":{"rendered":"\n

When you set up a trust for your benefit or the benefit of one or more of your loved ones, that\u2019s only the first step you need to take. The second step is to properly fund the trust. This doesn\u2019t happen automatically. You need to be proactive.<\/p>\n\n\n\n

Creating an empty, i.e., unfunded, trust is worse than useless. It can, and undoubtedly will, cause your designated beneficiary or beneficiaries major problems in the future. Take the following horror story, for example.<\/p>\n\n\n\n

The Eternal Darkness of an Empty Trust<\/h2>\n\n\n\n

A husband and wife worked with a supposedly expert estate planning team to set up a trust. The team wrote the trust documents and transferred the clients\u2019 designated property, an LLC business and some real estate, into it by means of two assignments. However, the couple was not given advice that they would need to sign new ownership and beneficiary desgination forms for those properties. The estate planning team assumed that, since the clients were sophisticated business people, they would take care of this final detail themselves. As such, the team did not discuss the trust again with the clients.<\/p>\n\n\n\n

Unfortunately, the couple never completed these forms for whatever reason. Consequently, the trust sat unfunded for years. When the couple died, their son discovered that the assets his parents had assured him were in the trust were actually still owned by them. The trust was essentially empty of assets and therefore not worth the paper it was written on.<\/p>\n\n\n\n

Failure to complete the overlooked ownership and beneficiary designations caused the assets to become part of his parents\u2019 probate estate and subject to what became a lengthy probate process. Moreover, these personally owned assets increased the value of his parents\u2019 probate estate to the point that estate taxes were now due. <\/p>\n\n\n\n

Both results could have been avoided had his parents  funded their trust properly.<\/p>\n\n\n\n

Understanding Trusts<\/h2>\n\n\n\n

A trust is a legal vehicle with the following three main parties:<\/p>\n\n\n\n

  1. The grantor, i.e., the person who establishes the trust<\/li>
  2. The beneficiary, i.e., the person who will benefit from the trust<\/li>
  3. The trustee, i.e., the person or organization that will manage the trust assets and distribute them and the income they produce, to the designated beneficiary<\/li><\/ol>\n\n\n\n

    Many types of trusts exist, including:<\/p>\n\n\n\n