When you think of an empty vessel, you may think of a pot or a container that is hollow, ready to be filled but unfortunately empty.
This is an apt metaphor for the term “empty vessel” in the field of family trusts.
Your family trust lawyer might help you with planning, strategy, and in the creation of the documentary and legal framework for building your trust.
But many people do overlook the fact that the implementation is as important, if not more, than the framework.
Otherwise, what you have is just an empty vessel – and a non-functional trust.
This is one of the most common reasons why trusts fail. The settlor or grantor fails to transfer funds or assets into the trust, creating what may family trust lawyers refer to as the “implementation gap”
Why does Funding Matter?
“Funding,” as it is used in this context, refers to the process of transferring the ownership of assets and properties into the trust.
Many times, the reason that people forget or neglect to take this crucial step is because, transitioning into a “trustee” position for the trust may not seem like a substantial change. That is, they still have control and management of the assets.
But control and management of assets is a far cry from title ownership.
“Funding,” in this instance, means making sure that the assets are titled in the name of the trust. For instance, real property that once belonged to and is held in the name of Person A, would now be held by Person A, in his capacity as trustee for Trust X.
Perhaps because this does not seem like a substantial change to some, or to others, the process of re-titling assets and properties is a hassle – but failing to do so means that these assets intended to fund the trust have been left outside of the bucket.
The trust instruments may have been duly executed and formalized, and the trustee/grantor may treat the assets as though they were already part of the trust. But without the crucial step of funding the trust by formally transferring title, the trust does not quite have the substance needed to carry out the terms spelled out in the trust instrument.
If a property has been left out of the trust, the property may be subject to probate – especially if the gross value exceeds the threshold for small estates in California. Probate can involve at least a year, maybe more, of the estate assets and properties being tied up in formal court proceedings.
How the Family Trust Lawyer Can Help with Funding the Trust
One of the salient services a family trust lawyer can help with is by making sure the transfer of assets to the trust meets all legal requirements applicable to the said property.
Transfers of real estate, for example, requires certain formalities including the appropriate transfer deeds that meets all statutory requirements to effect the said transfer. This may also involve the payment of taxes, the filing of appropriate tax reports, updating ownership records, and a preliminary review of existing titles to ensure that there are no clouds or hidden issues that might complicate or invalidate the transfer.
Harmonizing Payouts
Some asset transfers may not require much complexity. IRAs, life insurance policies, 401ks, bank accounts – these assets usually transfer directly to the designated beneficiaries upon the death of the account owner.
The first thought might be that this is good news – you won’t have to worry about cash accounts having to go to probate. They can go directly to your family members at a time when they will probably need it the most.
But this may not always necessarily be true.
For instance, a minor beneficiary may, at the time they turn 18, receive a massive one-time payment of all these assets.
You can hope that your child will learn how to manage this much wealth at their time of life. But pragmatically speaking, you would want to set your child up to avoid excess spending before they have truly learned the value of the wealth you are leaving them.
A family trust attorney can help by coordinating the transfer of these assets into a trust for the minor children so that when they turn 18, they can start receiving partial disbursements that would keep them comfortable but not excessively wealthy. You can ensure that their educational and medical or health needs are properly taken care of, that your child has sufficient funds for daily living, while reserving the lumpsum payment for a later point in time triggered by a predetermined condition: when they turn 25, when they get married, or when they graduate from university.
So the creation of a trust is far more than just drafting a trust instrument, signing it, and then funding the trust.
You will want to make sure that the trust aligns with the entirety of your estate plan, whether this might involve probate, Transfer-on-Death/Pay-on-Death accounts, out-of-state properties, tax liabilities, and even business succession plans. The care, support and guidance for the family members you are leaving behind – particularly minors or other dependents, will also be an important factor.
Setting up the Safety Net
Filling up the bucket is much more effective if you also implement what would effectively function as a safety net.
So to speak.
Once you have funded the trust, it may happen that some assets unintentionally get left out. For this, a pour over will works essentially as a safety net. At the time of death, the pour over will directs any assets outside of the trust to be transferred or poured over into the trust.
The key here is that the grantor or settlor intended these assets to be transferred to the trust.
The pour over will is essentially a will, however, and any transfers to the trust will only be undertaken after the will has been probated.
Additionally, another safety net is what is referred to as a Heggstad Petition. This works particularly for assets intended to be part of the trust, but where the transfer of title to the trust was never finalized. A property identified in the trust instrument, for instance, is evidence of the grantor’s intent to transfer the property to the trust. If at the time of death the property is still under the grantor’s name, then a Heggstad Petition will seek to fulfill the grantor’s intention by transferring the property to the trust – sans the probate proceeding.
Estate Planning as a Life Strategy
One thing that any person intending to create an estate plan should understand is that an estate plan is not a one-and-done thing. The most effective estate plan is one that is fully customizable to a person’s unique circumstances – family situation, internal family dynamics, the value and types of wealth and assets they are leaving behind, and the person’s intentions as to what happens to the assets they are leaving behind after they pass away.
To be able to get the most out of your estate plan, it is not enough to DIY it through online forms and templates. The services of a family trust and estate planning lawyer is invaluable. They can help you examine your options and implement your intentions within the specific legal and statutory framework that is applicable to you.
If you have any questions or would like to schedule a consultation about your estate planning goals, contact us today.