1.5.1 Definition

Unfunded trusts are referred to as “standby trusts.”

1.5.1.1

“As its name implies, it normally remains unfunded until a triggering event, such as disability, activates it.   If the triggering event does not occur, the standby trust generally is never funded and simply stands by until the settlor’s death.”   Cantwell and Rhodes, “Standby Trusts: Spare Tires for Late-Life Trips,” 19 The Colorado Lawyer, 851 (May 1990).

1.5.1.2

Please note that “unfunded” may be a misnomer because at Common Law, “A trust cannot be created unless there is trust property.”   Restatement of Trust (Second).   By statute, a legacy may be made to an inter vivos trust as long as “the trust instrument has been executed and is in existence prior to or contemporaneously with the execution of the will.”   Sec. 4-411, Estates and Trusts Article, Annotated Code of Maryland; Trosch v. Md. Nat’l Bank, 32 Md. App. 249, 359 A. 2d 564 (1976).   The statute, however, only applies to the validity of unfunded trusts for the purpose of receiving a legacy and may, in fact, simply be reciting the rule concerning incorporation by reference.   The general Common Law rules may apply to other circumstances.

The Uniform Trust Code (2003) generally provides that a trust is not in being until funded.   UTC § 401.   A standby trust is valid, however, as the funding need not be contemporaneous with the signing of the trust instrument.   The trust actually comes into being at funding (at death or disability).