Why an Unfunded Nebraska Trust Can Be Worse Than No Trust at All

When someone creates a Nebraska trust, it’s easy to think that once the document is signed, everything is protected. That your family is covered, your assets are safe, and you’ve avoided Nebraska probate. But here’s the reality: if the trust isn’t properly funded, those protections may not actually be in place. And in many cases, having an unfunded Nebraska trust can leave your loved ones in a worse position than if you hadn’t created one at all.

So let’s talk about why that is.

An unfunded trust is a lot like an empty box. You’ve built the structure — you’ve got the legal document, you’ve named your beneficiaries, signed everything. But unless your assets are actually transferred into that trust, it’s just a shell. The trust only controls what’s been put inside it. If you haven’t retitled your real estate, bank accounts, or investment accounts into the name of the trust — or aligned your beneficiary designations to match the trust’s plan — then when the time comes, those assets are still considered part of your probate estate under Nebraska law.

This leads to one of the biggest problems: a false sense of security. People assume that because they have a Nebraska trust in place, their family will avoid probate. But if the assets aren’t funded into the trust, those assets will still go through Nebraska probate — the very thing the trust was supposed to help avoid. Even with Nebraska’s adoption of the Uniform Probate Code, probate is still a court-supervised process. It takes time, involves legal fees, and is a public proceeding.

An unfunded trust also creates confusion for loved ones. The expectation is that the trust will handle everything, but when assets aren’t actually in it, your executor or trustee is left scrambling — trying to sort through paperwork, dealing with probate for some assets and trust administration for others. It can quickly turn into a frustrating and expensive process.

And while having a Nebraska pour-over will can act as a safety net — meaning it can catch any assets left out of the trust and direct them to “pour over” into the trust after you pass — those assets still go through probate first. So if the goal is truly to avoid probate, a pour-over will doesn’t replace the need for properly funding your trust.

There’s also the issue of missed protections. Many clients use trusts for purposes beyond probate avoidance — for example, shielding assets from creditors or lawsuits, protecting privacy, or managing assets in the event of incapacity. But those benefits only apply to assets actually held in the trust. An empty trust doesn’t provide those protections.

So how do you make sure your Nebraska trust is funded properly? It starts with identifying which assets should go into the trust. For real estate, that means working with your attorney to prepare and record a new deed transferring ownership into the trust. For bank and investment accounts, it usually involves updating account ownership or titling with your financial institution. For life insurance or retirement accounts, you may need to update beneficiary designations to align with your trust’s instructions. And this is not a one-and-done process — life changes, so it’s smart to review your Nebraska trust regularly and update funding as needed.

Some clients ask me, “What if my estate is small?” And it’s true — Nebraska does offer simplified probate procedures for smaller estates, such as those with personal property and real estate valued under certain thresholds. But even then, a properly funded Nebraska trust offers additional benefits — privacy, control over how and when distributions are made, and protection in the event of incapacity — that a simple will alone can’t provide.

And here’s one last piece of advice: funding your trust is not always a DIY project. The process of transferring assets — often called “funding the trust” — can involve legal documents, financial paperwork, and coordination with banks and other institutions. It’s smart to work closely with your Nebraska estate planning attorney and financial advisors to make sure everything is done correctly.

Bottom line — having a Nebraska trust is not just about having a signed piece of paper. It’s about making sure your assets are actually in the trust. Otherwise, it’s like buying a car but never putting gas in the tank. It’s not going to get you where you want to go.

If you’re unsure whether your Nebraska trust is properly funded — or if you’d like help creating a Nebraska trust that truly protects your family — I’d be happy to help. You can reach me at 402-259-0059 or zach@zandersonlaw.com.