Unfunded Trusts Cause Problems in Trust and Estate Litigation
Creating a trust is one of the most important steps a person can take to control how their assets are distributed after death. But a common and costly mistake undermines many estate plans: the trust is never funded. In other words, the legal document exists, but the assets it’s supposed to control were never transferred into it. This failure is more than a paperwork issue. It leads directly to confusion, family disputes, and in many cases, litigation.
At Trust Law Partners, LLP, we handle trust and estate litigation throughout California. One issue we see repeatedly is the impact of unfunded or partially funded trusts. These cases often begin with a simple misunderstanding and escalate into high-stakes legal battles between family members, heirs, and excluded beneficiaries. The decedent may have believed they had completed their estate planning, but their failure to fund the trust can derail everything they intended to accomplish.
What It Means to “Fund” a Trust
Once a trust is drafted, it must be “funded” to have any legal effect over assets. This means that property—such as real estate, financial accounts, and personal investments—must be formally transferred into the name of the trust. A trust can only govern the assets it owns. Without these steps, the trust remains an empty shell.
For example, if someone creates a living trust and intends for their home to pass to their children through it, they must sign and record a new deed transferring the home into the trust. The same principle applies to bank accounts, brokerage accounts, and business interests. Assets must be retitled, assigned, or otherwise linked to the trust while the person is still alive.
How Unfunded Trusts Lead to Legal Problems
When someone passes away and their trust hasn’t been properly funded, the trust typically has no control over the majority of their property. The assets they failed to place into the trust will instead pass through the probate process or under California’s default intestate laws. This can cause significant legal, financial, and emotional consequences for the surviving family.
One common issue is that property the decedent believed would be distributed through the trust must now go through probate. That means delays, added legal fees, and public court proceedings. Many people create trusts specifically to avoid probate, so this outcome is contrary to their original goal.
Another serious consequence is the exclusion of beneficiaries. Suppose the trust names all three children of the decedent as equal beneficiaries, but the decedent never moved certain assets like a home or bank account into the trust. If those assets are instead governed by a will or intestate law, only one heir might receive them. The trust beneficiaries are then left with nothing, and litigation becomes likely.
A third problem arises when different documents express conflicting instructions. The trust may say one thing, while a separately held account or property title points in another direction. This leads to disputes over what the decedent intended. These disagreements are especially common in blended families or second marriages, where relationships are complicated and expectations often conflict.
Probate vs. Trust Distribution
When assets are not placed in the trust, they’re handled by the probate court system. If the decedent had a valid will, the assets are distributed according to that document. If there was no will, California’s intestate succession laws apply. These default rules often favor a surviving spouse or closest blood relatives, regardless of the terms of any unfunded trust.
In many situations, people unintentionally disinherit individuals they meant to provide for. Stepchildren, for instance, may be named in a trust but are not legal heirs under California intestacy law. When the trust isn’t funded, those individuals can be completely excluded—even if they were financially dependent on the decedent or actively involved in their care.
Pour-Over Wills and Their Limits
Estate planners often draft a “pour-over will” alongside a living trust. This document is meant to act as a backup, stating that any assets not titled in the trust should be added to it at death. While helpful, a pour-over will still requires the probate court to transfer assets. That means the process the trust was designed to avoid becomes necessary anyway.
In addition, if no pour-over will exists, or if it was not signed or properly executed, there may be no legal path to place those assets into the trust after death. The property could then pass to individuals the decedent never intended to benefit.
Fixing the Problem After Death
If a loved one passed away with an unfunded trust, legal remedies may be available—but they are not automatic. In California, courts allow the filing of a “Heggstad petition,” which asks the court to treat an asset as part of the trust even if it wasn’t formally transferred. To succeed, this type of petition requires clear evidence that the decedent intended the asset to be governed by the trust. That could include a schedule of assets attached to the trust document, written instructions, or consistent statements to family and professionals.
In some cases, if professionals like attorneys or financial advisors failed to ensure assets were transferred into the trust, a claim for negligence may be viable. Similarly, if a third party such as a sibling or spouse interfered with the transfer of assets into the trust, litigation may focus on restoring what should have gone into the trust in the first place.
These cases often hinge on the clarity and consistency of evidence. Testimony from witnesses, documentation of intent, and records showing the decedent’s actions before death all become important.
Preventing Future Disputes
The best way to avoid litigation over an unfunded trust is to confirm, during life, that the trust actually holds the assets it’s meant to govern. That means confirming real estate is deeded to the trust, financial accounts are retitled in the trust’s name, and all valuable property has been transferred or assigned appropriately. If you’re assisting an aging parent with estate planning, encourage them to review not just the documents themselves but how the assets are titled.
Beneficiary designations also matter. Retirement accounts, life insurance policies, and some bank accounts pass outside the trust. If these designations contradict the trust’s distribution plan, further disputes may arise. A thorough estate review can help identify these inconsistencies and correct them before they create problems.
Why It Matters
An unfunded trust doesn’t just create logistical problems—it also creates emotional ones. Family members who expected transparency, fairness, and closure may instead face court battles, uncertainty, and strained relationships. Beneficiaries who feel wrongly excluded often experience a deep sense of betrayal, and even rightful heirs may find themselves blamed for outcomes beyond their control.
In many of our cases, we find that the decedent had good intentions. They thought creating a trust would protect their loved ones, reduce conflict, and ensure an orderly transfer of assets. Unfortunately, without funding the trust, those goals are rarely achieved. Instead, the family is left to navigate a complicated legal process that could have been avoided.
How Trust Law Partners Can Help
At Trust Law Partners, LLP, we focus exclusively on trust and estate litigation. We represent clients across California in disputes involving unfunded trusts, omitted assets, improperly titled property, and more. Our firm does not draft estate plans—we litigate them.
If you are a beneficiary who has been left out of an inheritance because the trust wasn’t funded, or if you suspect someone has wrongfully diverted property from a trust, we can help. We evaluate trust language, asset transfers, intent, and related documents to determine whether legal action is warranted.
Our firm works on a contingency fee basis, so you don’t owe anything unless we recover money for you. We know how to use court petitions, including Heggstad claims and trust reformation actions, to correct mistakes and enforce your rights.
Call Trust Law Partners, LLP at 833-853-9305 for a confidential consultation.
