Unfunded Trusts: After the death of the settlor of a trust, the client will not place assets into the name of the trust entitled to the asset. What should the CPA do?
(April 2002) Unfunded trusts, particularly after the death of the first spouse (or any decedent) can create a range of income tax, estate tax and non-tax problems. Many clients are reluctant to have title in the name of the proper subtrust because they want to save money or the importance of keeping trusts funded has not been impressed upon them. Also, some attorneys do not recognize the significance of proper funding from a tax or non-tax standpoint. The unfunded trust can leave open up the question of who owns an asset, whether gains or losses belong to a trust or another person (such as a spouse), muddy up the waters if the surviving spouse remarries, cause significant estate tax audit issues on the death of the first spouse, or create a range of income tax effects. When CPAs sign income tax returns reflecting income being reported to the wrong person or trust, problems may arise as well for the CPA. The CPA, therefore, should involve the attorney for the trustee and reinforce the i
