The Importance of Funding Your Trust

A Revocable Living Trust can be a fantastic tool to use in your Estate Planning Portfolio. A well-designed, unique to your circumstances trust can provide probate avoidance, protection from incapacity, and privacy and liability control for your heirs. A Revocable Living Trust is a fantastic option for most people, and it can be the lynch pin to a Complete Estate Plan. However, even well-designed trusts can fail to achieve the above benefits if the Trustmaker fails to fund their trust.

Trust Funding is the next step after signing all of the trust documents. Funding is the act of moving or retitling your assets into the name of the trust. Without this necessary step, our trust will be empty, and all our assets may have to go through probate court. A Pour-Over Will can ensure that your assets still make it to your designated heirs, but if we are using a Pour-Over Will to make this happen, we are likely in Probate Court, depending on the level of assets at death. A better alternative is to simply make sure that your assets are conveyed to the trust while you are alive and have capacity, or to make sure that your assets have a proper beneficiary designation making sure that they avoid probate.

To fund a trust, although out of the ordinary, isn’t terribly difficult. The first thing to do is to make a list of all your assets. This will include Real Property, Vehicles, Checking and Savings Accounts, Brokerage Accounts, Shares of Stocks, Life Insurance Policies, Retirement Accounts, and anything else that you own that has value. Next, you will go directly down the list to make sure that all items get retitled in the name of the Trust. We do this by moving the title of your asset from your name as an individual, to your name as a Trustee of your trust.

For example. If you own a residential property, once your trust is signed and executed according to the law, you will execute a deed on your property that will move the home ownership from your name as individual to your name as Trustee. This will usually be done via a Quit Claim Deed, or a Special Warranty Deed. Your attorney will usually do this for you as part of the Trust creating process. This does not change anything with regards to taxes, nor does it change your rights to sell or occupy the property. The property, the loan, and all the equity are still in your name and associated with your Social Security Number. Once the deed is recorded, we have successfully funded that deed into the trust. Thus, if you pass away, we will simply file an affidavit along with your death certificate, and just like that, the trust now owns your property without need for us to go to Probate Court.

Another example can be a Checking Account at your local bank. You will need to go to the bank and let them know you have a brand-new trust, and you would like the bank to move the account to the name of the trust. You will need to provide the bank with either a copy of the trust or a Certificate of trust. The bank is supposed to simply change the name on the account and that would be it. The statements would start coming to you as Trustee of your trust, and you have successfully funded this asset into the trust without having to open a new account, get new checks, or reschedule any automatic transfers.

At most banks it is this easy. For some banks, instead of renaming your current account, they will require that you put a Pay on Death designation on the account. This is an agreement with you and the bank that states that when you pass away, the account then changes ownership to whomever you designate. You will want to go ahead and designate the trust as your Pay on Death Beneficiary. This will also keep you from having to close your account and will ensure that the account is funded to your trust at your death.

One question we are often asked is “Should I move my Retirement Accounts to my Revocable Living Trust?” The answer is unfortunately not as easy as a quick yes or no. (Please see our blog post regarding How to Plan for Retirement Assets and Death for a more in-depth look at this question.). The short answer is that it will depend on your assets, your circumstances, and current law. The SECURE Act changed the way in which we plan for Retirement assets. A spouse can step into a decedent’s shoes and still get the tax deferral benefit, as can some disabled beneficiaries, but anyone else, including a trust, is going to have to pay income taxes on the balance of the Retirement Account within 10 years. There will be planning aspects to your unique plan, and you should certainly discuss this with an attorney. Our Attorneys have years of tax experience and especially suited to answer these types of questions within the scope of your unique circumstances.

To fully fund the trust, you will address each asset and make sure that it is retitled or otherwise moved to the trust. As stated above, although it is out of the ordinary for you, the banks should have no problem with your requests and the whole funding process should be quite simple. If you did your Living Trust with Citadel Law Firm we will also be available to answer your questions and help you through the process.

In summary, a well-drafted Estate Plan Utilizing a Revocable Living Trust is a fantastic tool for most people. However, a Trustmaker must follow through with the Funding process to ensure that their Estate Plan avoids the need for Probate Court. If you fail to fund your trust, Probate may take anywhere from 6 months to 2 years and will delay your heirs inheritance. Further, hiring a probate attorney can cost anywhere from $5,000.00 to $10,000.00 or more, depending on how much work needs to be done, if there is any fighting or contest to the estate, or if there are special circumstances. Estate litigation can be prohibitively costly. The alternative of having a well-designed, Complete Estate Plan that is fully funded is by far a better option. Please click the SCHEDULE button to initiate your free consultation with one of our experienced Chandler Estate Planning Attorneys. If you prefer call (480) 565-8020 and we will be pleased to help you.

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