Next to having your living trust properly drafted, what is the most critical step in assuring your estate plan will actually work?
It’s called “funding” your trust. While it is a funny sounding word, trust funding is not a laughing matter.
You may have said to yourself, “I have a well-designed estate plan. My documents are drafted, signed, and now I’m done.” No, not at all. The work is hardly complete. In many ways, it’s just beginning!
You want an estate plan that works to achieve your objectives if you’re incapacitated or you pass away leaving your loved ones to have the best plan possible. To accomplish your objectives, your trust must be accurately “funded.”
“Trust funding” is a process. It’s transferring your property to your trust when you establish it and then maintaining your trust and its funding during your lifetime. Most persons, even ones with trust-based estate plans, have not heard a lot about funding or they were informed by their attorney to do so, provided written directions to do so and then they promptly told themselves they would “get around to it” later, but it never happened.
It’s been our experience, through the estates we settle by probate (the very thing the deceased wanted to avoid) that most people don’t fully understand the importance of funding their trust, much less why it’s so risky to leave their trust unfunded. Worse yet, the person attempts to do so without the guidance and assistance of an estate planning attorney.
“Funding” a Living Trust involves transferring your assets from their current ownership or beneficiary designation to the name of the trustee(s) of your Trust. To do so, your assets are either re-titled in the name(s) of the trustee(s) of your trust (meaning you change the ownership) or, in the case of some assets like retirement plans, life insurance, and annuities, the beneficiary designations are changed to name the trust as a beneficiary. It may be necessary to “assign” a specific type of asset to the trust using a document called an assignment. If the asset is real estate, a special type of warranty deed is used. Each asset must be evaluated individually to determine the right funding approach to coordinate with your overall estate plan.
Our next blog will talk about what happens if your trust is not funded or only partially funded? Until that article is posted, you may be interested in more detailed information about this subject. If so, please contact me and ask for a courtesy copy of an article entitled the “A, B, Cs of Funding a Trust” and we will send it to you via email as a PDF formatted attachment. The article is intended to underscore that trust funding is done step by step, meaning asset by asset.
The article is not intended to provide legal advice or encourage you to do trust funding without the guidance of your estate and business planning attorney.