Senior Law Corner: The toilet paper trust

Editor’s note: This is a contributed column from local attorney James Michael Ratcliffe on legal issues facing seniors on Kaua‘i and around the nation.

Yet another elderly couple came into my office the other day with a trust made of toilet paper.

She and her husband had paid good money for the trusts back in 1992.

The trust had been drafted by a competent attorney. It contained the necessary clauses to assist her and her husband in avoiding probate and securing the tax advantages that revocable living trusts provide, and it actually has been filed in the bureau of conveyances on O‘ahu.

Unfortunately, the trust that she was relying on to assure her assets would go to her child was worth no more than a pile of toilet paper. It was worth less, really, because toilet paper has at least some use.

Their trust was of no use to them at all because it had not been funded.

Many attorneys simply assume that their clients understand the revocable living trust game. The game is simple. You set up a magical thing called a trust. You set it by declaring you are setting it up and putting it on paper. Oftentimes, it is structured as an agreement between the couple as trustors and the same couple as trustees.

As I often tell my clients, it is a silly fiction, an agreement between you and you, but it works.

Once you have declared the trust and agreed with yourself to run it by certain rules, you have done all you need to do to create a trust.

But — and this is a huge but — you have not completed the job until you put something into the trust.

You see, the trust is like a big bowl with a set of instructions taped to the side. The instructions say what to do with what is in the bowl. If nothing is in the bowl, then the bowl is worth nothing.

The unfunded trust has all the legal effect of toilet paper on any of your assets that have not been put into the trust bowl.

The good news is, if you are still alive, you still have time to fund your trust.

If you are one of those who thought they were done when they walked out of the attorney’s office with their brand new trust, set up an appointment with the attorney to discuss which assets are to be placed in the trust.

If you are a senior couple and the house is not in the trust, there may be some serious decisions for you to make in regards to long-term care planning that might actually involve taking the house out of the trust or at least splitting the ownership of the parcel as opposed to putting it in the trust.

All of these decisions should be taken after full consultation with an attorney but, the bottom line is, if you never put your assets in your trust, you never finished the job and need to get some business finished to turn that toilet paper trust into a serious estate plan.


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