Many people visit our office holding their parents’ family home within a trust created by their parents, often years after both parents have passed away. What most of these people don’t realize is that once a trust has fulfilled its purpose, it should typically be defunded, and the assets should be transferred to a new trust. This process (defunding trusts) is essential to avoid probate, which can be a lengthy and costly ordeal. By defunding the old trust and moving the assets into a new trust, you can ensure that the assets are distributed according to your wishes in a timely manner.
Consider this example: Mom and Dad passed away in 2019, and their trust bequeathed their house to their two adult children, Son and Daughter. If Son and Daughter decide to keep the family home, they should not leave the house in the parents’ trust. The original trust’s purpose was to transfer the house to the Son and Daughter outside of probate. Now that Son and Daughter have inherited the house, the trust’s purpose has been satisfied. If the Son were to pass away with his share still in the parents’ trust, his 50% interest in the house would likely need to go through probate court.
To avoid this, Son and Daughter should transfer their respective 50% interests in the house into their individual trusts. By doing so, each of their interests in the house would bypass probate court. This also allows the Son or Daughter to designate their own beneficiaries for their share of the property.
In summary, after both parents have passed away, it is crucial to consult with a trust attorney about the next steps. This usually involves a combination of trust administration for your parents’ trust and the drafting of estate planning documents for you. This ensures that the transition of assets is smooth and that your own estate is properly planned to avoid future complications.
For more information, please contact info@tyrelawgroup.com or 626-858-9378.
