Hey there, Legal Tea Listeners –This is your host, Jenny Rozelle! Today’s episode of Legal Tea is the “cautionary tales” topic. And on these “cautionary tales” episodes of Legal Tea, we normally talk about real-life cases with real-life clients that are things me or my office have worked on -or they are things that I think are generally good things to be aware of, so you don’t turn into a cautionary tale on my Legal Tea podcast one day! Well today, we’re going to be talking about a case where someone failed to get her Living Trust funded. It’s a great follow-up to last episode – if you listened to the episode on Muhammad Ali, I wrapped that episode up with some thoughts about Trusts and one of the things I said … was that a vital part of the process is called Funding.
Today’s story is about someone, let’s call her Betty. Betty created a Trust and after Betty threw many of our letters on her kitchen counter (not doing anything with them at all), she passed away totally unexpectedly. Unfortunately for Betty and her family, her choice of not acting on any of our letters (well ANY of our communication) caused a MASSIVE mess and her estate took years, YEARS to get administered and closed up (after her death). Starting at the very beginning, Betty embarked on her estate planning journey and ultimately, through the process, she elected to do a type of Living Trust.
Now, when I am trying to explain a Trust, how it works, etc. I often describe a Trust as a bucket … you take assets out of your name and put them in your bucket. So, what that means (more logistically and legally speaking) … things will come out of your name … and go into the name of your Trust. So because assets are now in the name of the Trust, they have to operate by what the Trust says. That process of taking assets OUT of your name and INTO the name of your Trust is called funding. As I always say, it’s called funding … not because it’s fun, but because it’s necessary. So, back to Betty … Betty signs the Trust and after that, it was time to discuss funding.
That happened … the attorney and Betty set the funding plan. We were going to change ownership of some assets, change the Trust to be the beneficiary of other assets. I often say that the funding process is AS IMPORTANT as signing the Trust document – because if you do not fund the Trust, the Trust is a big ol’ pile of paper that may not do what you are trying to do and accomplish.
At the same time, though, the funding process always takes two to tango. What I mean by that is the attorney will be instrumental in getting a Trust funded … like, if I use my office for example, we usually prepare/record Deeds for properties (like a house) to be transferred into the Trust; we usually prepare, what we call, Letters of Instruction for bank accounts so the clients will take them to the bank to tell the bank what to do; we usually obtain and complete forms for assets like life insurance, retirement accounts, and investment accounts; etc. Or, if they have, say, an active financial advisor, we’ll work with them to get titles nice and updated! You get the point. Nonetheless, there is still SOME things that the client has to do … like sign and return the forms back to us.
So, because some people want or need accountability to get homework done, my office, at least, not sure about other offices!, we have developed a “reminder process” for funding. So, if a few weeks go by and we haven’t received things back from the client, we will send a letter and say, “Hey, don’t forget about XYZ assets … here’s what we have that is still NOT complete…” and we will list the specific assets. We have three reminder letters that go out like this … to hold them accountable … and to protect us. Because if THEY do not do THEIR homework, I do not want the client’s family mad at us! Through the process, too, we’ll call and try to schedule a meeting … anything to get them movin’ again!
So, with Betty, a first reminder letter was sent … and a second … and a third … and after a client fails to communicate at all after the third letter, a final letter is sent to them and basically say, “Hey, we’ve tried and tried and tried to get a hold of you … and you haven’t responded at all.” From that, we turn around and stop actively working on their funding. After all, I don’t think any rational person would think that doing the same thing over-and-over and getting the same result (no response from the client) is fair to us. We just simply can’t do our job without the client’s communication and cooperation.
That is exactly what happened with Betty. Three letters were sent asking for her to participate, communication, etc. As a last ditch effort, we attempted to call her a couple times after the three letters. And would you know it – on the second attempt, she picked up! We ended up scheduling a meeting for her to come in and re-group. At the meeting, she was rational and took the blame, and just said “life has been busy!” While she was retired (she was in her late 60s), she had such a good heart and volunteered more than anyone I’ve ever known. So, between life, volunteering, etc., she “came clean” and said that she had been throwing our letters on the kitchen counter and just had not gotten to them yet.
The meeting was fine, pleasant, and it was actually good to see her/catch up! After the meeting, would you believe me if I said we did the EXACT same song-and-dance? We got nothin’ but silence from her again, and the “reminder letters” started again. Three more letters. Annnnd … Nothing. We can lead a client to the water, it’s up to them to drink it at some point, right? The next time we heard anything about Betty … was that she DIED. So, some time passes, the family called to get scheduled to come in for a meeting to talk about “what” legally-speaking needs to be done now that she had passed away. I remember all of us at the office were on pins and needles thinking, “Oh man, we hope her family isn’t coming in with boxing gloves on! Like, surely they’ll understand that we tried-and-tried-and-tried to get their Mom’s Trust funded.”
The family got to the meeting and were so apologetic saying, “We are soooo sorry! We found all your letters sitting on Mom’s kitchen counter … and we have to assume she didn’t do anything you asked of her to do.” So, we start diving into where assets are, how they’re titled, what beneficiaries are on them, etc. And boy, we sure had no idea what we’d be walking into. What we proceeded to discover (over the next few weeks, after having to do some investigating and communication with various companies) was that Betty had her assets just absolutely all over the place.
The issue with this is her Trust had a very specific distribution pattern – like, we had talked about what she wanted VERY extensively and sadly, because there were very few assets in the Trust, the Trust’s distribution pattern would not govern a majority of her assets. Some of Betty’s assets had some of her kids on some assets; some of her kids on other assets; some grandkids (who were like late teens/early 20s) on assets; etc. In her Trust, she had the kids inheriting equally, and she had some provisions in place to still have money go to the grandkids, but in a way that they wouldn’t control their inheritance if they were young (like they were).
Needless to say, it was a mess. Ultimately, the family and the office got through it – It felt like every time we turned, there was some sort of hurdle we had to overcome. It was the classic … take one step forward, two steps back – the entire process. Which, of course, is a very inefficient and frustrating way to deal with the legal “stuff” after someone passes. Though, had Betty locked arms with us to get through the Trust funding process, this likely would have never happened. So, because she did not, we (the family and our office) were left to clean up the mess.
So, what can we learn from Betty’s case? Oh, where do I start…
First, I think it’s important to understand that if you have a Trust or want a Trust as part of your estate plan, please please please make sure its funding is done. As you can tell by this case, like I said earlier, it’s one thing to create and sign the Trust document, but a second vital part of a Trust is to work with an attorney to set a plan on assets are to be owned and beneficiary-designated and then actually move the assets accordingly (which is the funding process).
Second, another thing to know about having or doing a Trust as part of an estate plan is … I obviously recommend working with an estate attorney … but something to “watch out” for is that not all attorneys help you fund your Trust. Like I said at the very beginning, the funding process always takes two to tango. What I mean by that is my office will be instrumental in getting a Trust funded, but we can’t do it all. Though, there are many law firms “out there” that barely, if at all, even talk about the importance of funding – and WHAT specifically needs to be done and WHO is doing each action. And the providing accountability to attempt to get Ts crossed and Is dotted.
You know, I have a lot of pride in my office, in this regard, because we try to do everything we can do to help a client get their Trust funded … but a lot of attorneys will set the funding plan and tell the client, “Good luck! It’s on you now, buddy!” Honestly, from a business perspective, I see why they do that – the funding process is a DOOZY and we have a TEAM that helps clients get their funding done. Of course, all the members of that team gets paid, has various HR benefits, etc. So, if an attorney is looking for a way to shave business expenses, that’s an easy way to shave some expense… I digress… besides one last comment. If you’re price-shopping and one attorney is somewhat dramatically cheaper than another (if you’re comparing apples-to-apples), it may be because they’re not helping you fund a Trust. So really, you’re comparing apples to oranges at that point. Alright, I’ll get off my soapbox now…
Let’s shift to a sneak peak of next week, which we’re circling back to the “current trends” topic where we talk about things that are going on currently that impact my estate and elder law world – or maybe, things that I have stumbled upon on the news or social media that is relevant to this podcast. So, we’ll dive into that story next week, Legal Tea Listeners, so until then, be well and talk soon!
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