Which Trust Controls?

One of the most important aspects with regard to trust-based estate planning is funding the trust.  A trust only controls assets that are titled in its name.  This is why creating the trust is only half the work.  The other half of the work is to draft documents, deeds, and forms to ensure that all assets are titled into the name of the trust.  After this initial work is completed, it is imperative to make sure that, going forward, all assets acquired after creating the estate plan are titled to the trust.

The most common type of trust funding problem is the failure to transfer some assets into the trust.  Such a failure creates a scenario where some assets are titled to the trust while other assets are still in the trust maker’s individual name.  The assets that are in the trust can be transferred to the beneficiaries without court involvement while the assets that are not titled to the trust will be subject to another procedure, perhaps even probate, depending upon the nature of the asset and the total value of the assets that are outside of the trust.

Another problem occurs when a person creates a second or third trust, perhaps intending to revoke or change a previous plan, but fails to transfer all assets to the new trust.  The result is that some assets are titled to the older – and perhaps out-of-date trusts – while other assets are titled to the new trust.  While it might be argued that the trust maker only intended the most recent trust to control all of his/her assets, legally, each trust remains effective and controls its own assets. 

If the trusts have different trustees or different beneficiaries, some assets will be distributed one way and other assets will be distributed another way.  The situation will cause confusion, delay, expense, and possibly hard feelings or litigation. 

Trust funding can often be confusing and more detailed than one might think.  This is why it is important to have an attorney who handles the funding rather than relies upon the client to be responsible for the funding, which is a crucial aspect of the estate plan.
Another way to guard against this potential problem is to amend the existing trust rather than create an entirely new trust.  If the trust maker wants to change everything in the trust, he/she can simply restate the existing trust, amending it in its entirety, while keeping the same original trust name and same original trust date so that all previous funding is still valid.  This will ensure that 100% of the assets are controlled by the most recent version of the estate plan.

This potential problem illustrates why it is paramount to have a comprehensive and detailed approach to estate planning, even when a given estate appears to be “simple.”