A living trust is a useful estate planning tool that allows your assets to pass to family members (or other heirs) without having to go through an extensive probate process. While a trust may sound complicated, it is actually a rather straightforward arrangement. Basically, you sign a document certain specified assets to a trustee—which is usually yourself while you are still alive—and upon your death, a successor trustee maintains or distributes those assets as you specify. Since title to these assets is held by the trustee, not you as an individual, they are not subject to the provisions of your last will and testament.
But it is not enough to simply sign a document declaring you have a trust. The trust is merely an empty legal shell that must then be funded with assets. The transfer of title to assets is a crucial, but often overlooked, step. For example, if you want your house to pass under your trust and not your will, you must sign a deed transferring the property from yourself to the trustee.
Unfunded Trust Leads to “Ineffective” Deed
Skipping this step is not optional. Ohio courts are not inclined to overlook a person’s failure to properly fund a trust. Here is a recent example. A man owned a farm in Union Township, Ohio. In 2000, he created a living trust. For some reason, he never funded the trust and ended up revoking it in 2005. However, in 2008, he signed a deed conveying the farm to his two brothers; this deed identified the man not as the individual owner but as trustee of his (now-revoked) living trust.
A few weeks after signing this deed, the man passed away. His last will and testament left the entirety of his probate estate to his two daughters. The daughters then sued their uncles in Ohio probate court, arguing their father’s farm should have passed under his will, as it was never part of the trust. In other words, the deed was invalid because the trustee did not hold title to the property in the first place.
The brothers argued the court should honor their brother’s “intent” to transfer the farm to them, notwithstanding the incorrect wording of the deed. The courts did not accept that argument. In a 2012 decision, an Ohio Court of Appeals panel said the law was black-and-white on this subject: “a quitclaim deed conveys to the grantee whatever interest the grantor has in the property.” Here, the grantor—the trustee—had no interest in the property whatsoever. The deed was therefore “ineffective, and conveyed nothing” to the brothers.
This decision proved more costly to the brothers than merely losing title to their brother’s farm. The estate then asked the probate court to “pay the estate for rents accrued during the time the brothers occupied the property.” The court agreed and ultimately held the brothers owed the estate over $86,000. Once again, the Ohio Court of Appeals rejected the brother’s arguments and affirmed the probate court’s decision.
Need Help With a Will or Trust?
A well-drafted trust can help keep your relatives out of probate court. But as the above example illustrates, an improperly funded trust may just end up causing expensive and unnecessary litigation. This is why if you need help with a will or trust, you should consult with an experienced Youngstown estate planning attorney. Contact the Law Office of John C. Grundy to speak with someone right away.