The dangers of failing to fund a trust

The dangers of failing to fund a trust

On Behalf of | May 7, 2020 | Estate Planning & Probate |

One error that some people in North Carolina who have a trust as part of their estate plan might make is failing to fund the trust. This can mean assets that were intended for the trust may have to pass through probate, and some people may not inherit as intended.

Such assets as life insurance and retirement accounts that pass by beneficiary designation will not have to go through probate. However, if one intent of the trust was asset protection or to help with taxes, beneficiaries will not have that help. Some people might own property with a family member and have a joint tenancy with rights of survivorship. The intention might be for someone else to inherit the individual’s share, but if the asset is not placed in a trust, it might go to the individual who already owns the other portion.

If there are children under 18 or other minors set to inherit, a trust can protect those assets for them until they are old enough to legally own them. If the assets are not placed in a trust, a relative may need to go to court to get a conservatorship. If the individual has assets in a trust and becomes incapacitated, the successor trustee can take over. Otherwise, a relative might also have to seek a conservatorship.

Individuals who do not have an estate plan or who do not have a trust as part of their estate plan may want to consult an attorney about whether a trust might be useful in their plan. While some people assume that trusts are just for the wealthiest families, trusts can be useful in many situations. For example, if there is a family member who is likely to be irresponsible with an inheritance, the trust could be set up so that the trustee chooses when to make distributions.