Unfunded trust. What to do?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
ilan1h
Posts: 856
Joined: Mon Oct 22, 2007 3:40 pm

Unfunded trust. What to do?

Post by ilan1h »

My parents created an AB Trust several years ago and spent quite some time working on it. After paying a goodly fee to the lawyer who drafted it they proceeded to NOT fund it whatsoever. Yep, nothing went into it other than a small bank account. After a while my father died and I sold their house and gave the proceeds to my mother. I opened up a Vanguard account for her (which I manage) and put her entire assets there into a TOD account with her children as equal beneficiaries. There are no other assets whatsoever except for this one Vanguard account. Can I assume that that original trust is irrelevant at this point? Frankly, it's been a decade since I even saw it but I know that it was never funded. There was a will attached to it but it simply said that the kids should get the money (which the TOD account does anyway). I have no idea where this will is and the lawyer has passed away 15 years ago. She lives in NYC. I am not concerned about probate and not even that curious about the will. Is there anything that I need to worry about?
123
Posts: 6532
Joined: Fri Oct 12, 2012 3:55 pm

Re: Unfunded trust. What to do?

Post by 123 »

Likely nothing to worry about with an unfunded trust. It's always a good idea to have a will, the default distribution the state provides if you don't have a will might not be suitable. There is always some (often vary slim) chance of assets needing to be probated that cannot be anticipated. Like proceeds from litigation involving the death.
The closest helping hand is at the end of your own arm.
egrets
Posts: 357
Joined: Sun Jul 05, 2020 2:56 pm

Re: Unfunded trust. What to do?

Post by egrets »

Well, apparently it's not unfunded, since there is a small bank account in it. When I have an account in my trust, the financial institution has always required a copy of the trust, so they probably have one.

Is there a safe deposit box with paperwork? Is the small bank account in the unclaimed property situation?
aristotelian
Posts: 8276
Joined: Wed Jan 11, 2017 8:05 pm

Re: Unfunded trust. What to do?

Post by aristotelian »

Does the bank account generate a 1099INT?
bsteiner
Posts: 5232
Joined: Sat Oct 20, 2012 9:39 pm
Location: NYC/NJ/FL

Re: Unfunded trust. What to do?

Post by bsteiner »

Unlike California, probating a Will in New York is generally not particularly difficult, expensive or burdensome, so revocable trusts are not commonly used in New York.

Having property pass to children outright, by TOD or otherwise, is not a good idea when a child has or may have a taxable estate. It will throw the children's inheritances into their estates for estate tax purposes.

The original poster's mother should consult with competent counsel and update her estate plan.
Ron
Posts: 6696
Joined: Fri Feb 23, 2007 7:46 pm
Location: NY-NJ-PA Metropolitan Statistical Area

Re: Unfunded trust. What to do?

Post by Ron »

Normally, a pour over will fund a trust at the time of death assuming it was drawn up and executed properly.

See: https://en.wikipedia.org/wiki/Pour-over_will

In our case, we have a revocable trust which currently holds title to our house within it. All other accounts (e.g. investments, bank accounts, etc.) are outside the trust but will be placed in the trust after my/wife's passing, and the proceeds will be managed for the benefit of our adult disabled son via a trust manager that we have named within our respective wills.

You may want to check on your mothers current will to see if it contains the proper clause (valid within your state) to fund the trust after her passing.

FWIW,

- Ron
Post Reply