March 27, 2021
Why Trusts Fail? Why Assets Still End up in Probate Even With a Trust?
This is because of one big reason. It is not funded properly!
For this reason, a lot of the Trust would end up failing.
A Trust is like a suitcase. We need to make sure that assets are properly title or funded into the suitcase. If they don’t list the Trust as either the owner or the beneficiary, the Trust does not control what happens with that asset.
Don’t get your assets into probate! Make sure your Trusts are funded properly.
“A Trust is not worth the paper it is printed on if it is not funded properly.”
Words of wisdom from our Attorney and Financial Advisor Chris Berry.
Watch the full Wisdom Webinar for a more in-depth discussion.
Estate Attorney and Advisor Chris Berry of Castle Wealth Group answers questions on retirement and estate planning every Wednesday at 1pm. Register via this link or give our office a call at 844-885-4200.
Castle Wealth Group and Christopher Berry help families with estate planning, elder law, retirement planning, and tax planning from their offices in Brighton, Ann Arbor, Livonia, Bloomfield Hills, and Novi.
Castle Wealth Group helps families with their legal, financial, and tax planning for their retirement and legacy.
With the use of legal structures like revocable living trusts, Castle Trusts (asset protection trusts), Chris Berry and Castle Wealth Group can help your family plan, protect, and preserve what is important through their Retirement and Legacy Blueprint Process.
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Episode Transcript
The Big Reason
Hey everyone. This is Chris Berry with Castle Wealth Group, and today I’m going to tell you why most trusts will fail. And if you like this information, please make sure to subscribe.
Christopher Berry is a leading estate attorney and advisor in the area of retirement and legacy planning. He has been featured in publications such as Forbes, Kiplinger’s, Crain’s Detroit, and more. He’s the host of the weekly radio show and podcast The Chris Berry Show. He’s a national thought leader as it relates to retirement and legacy planning, and as author of the Amazon best selling book, The Caregiver’s Legal Guide.
I started off with a bold statement that most revocable living trusts that individuals or families put together fail for one big reason. That reason is they are not funded properly. And again, most of the revocable living trusts that I review in my office that were prepared would fail unless we make this simple fix. And that simple fix is making sure that the trust is funded properly. Now, I don’t know why this is, but many law firms, all they do is give their families what’s called a CYA letter. Now they might call it a funding letter. So when you get a revocable living trust, they’ll give you a funding letter giving you instructions on how to get assets titled in the name of the trust.
I call it a CYA letter because what happens is a lot of times families fail to get the trust funded for whatever reason. A, they might not understand the process. They weren’t educated properly on the process. Or B, life might get in the way. Or C, they might get bad advice from some of these financial institutions where the financial institutions tell the family is not to fund the trust or don’t name the trust as beneficiaries. So for this reason, a lot of the trusts that we review, had we not reviewed them, would end up failing, whether failing means ending up going to probate… Because keep in mind, a trust is like a suitcase. We need to make sure that the assets are properly titled or funded into the suitcase. Because if they don’t list the trust as either the owner or the beneficiary, the trust does not control what happens with that asset. This is a big misconception a lot of people have. They assume that just because I have a trust, I’m going to avoid probate.
Estate Administration
That’s not how it works. We have to look at how these assets are titled. So estate administration, we’ve talked about this before, the way it works is we look first to see how the asset is titled. Is it joint ownership? Then it goes to the joint person. Is there a beneficiary designation? Does it list the trust? Then it goes to the named beneficiary. Is it owned by the trust? Well, then the trust is going to control. But if an asset doesn’t pass through joint ownership, beneficiary designation trust, then it ends up going into probate, even if you have a trust, because you did not title that asset properly in the trust.
And it could be one of two reasons. One, when you set up the trust, it wasn’t funded properly. This is a big issue because a lot of law firms do not assist you with the funding process. They just give you the CYA letter, a funding letter, because now you don’t get it funded, you pass away, the kids are upset, they come back to the lawyer and say, “Hey, mom and dad spent 3, 5, $10,000 on the trust. Why are they going through probate?” And then the lawyer presents that CYA letter saying, “Hey, I told him to get it funded.” But that’s why we work so hard with our clients to make sure everything gets funded properly.
Titled Asset
And then the second reason is that maybe it was funded properly initially, but then life happens. Maybe you buy a cottage up North. Maybe you get an inheritance. Maybe you open up a new bank account. And if it’s not funded properly in the trust, well guess what, it ends up going into probate. So that’s why most trusts that we review would fail had we not reviewed them, because they’re not funded properly. So if you have questions on funding or whether your IRA should be listed in the trust, or should you be listing real estate in the trust, give our office a call. We’re here to help you. Hopefully this has been educational.
Please, if you do have a trust, a revocable living trust or asset protection trust, the most important thing you can do is make sure it’s funded properly. Make sure the assets are titled properly in the trust. And that’s one of the things that we do with our clients, is we’ll create an asset list and go through line by line, and there’s a lot of work that goes into it, working with these financial institutions to make sure everything’s funded properly. But we take it as our responsibility because a trust, it’s not worth the paper it’s printed on if it’s not funded properly. So this has been Chris Berry with Castle Wealth Group. Hopefully you found this educational. Please make sure to subscribe to our YouTube channel.
Castle Wealth Group has clients across the nation and helps families plan, protect, and preserve what is important by creating a retirement and legacy blueprint.