Funding: What it is and Why it Matters

A revocable living trust is the centerpiece of many estate plans. It serves many purposes; including avoiding probate and managing your assets in the event you become incapacitated. A will alone does neither.

A living trust is fully effective only when it’s fully funded. Having a trust that you neglect to fund is like buying a top-of-the-line safe but neglecting to lock your valuables inside. The importance of funding cannot be overemphasized.

What does it mean to “fund” a trust? You must transfer ownership of all or most of your assets to the trust or designate the trust as beneficiary of your IRAs, qualified retirement plans or insurance policies. Failure to fund your trust will work to defeat the purposes for which you decided to do estate planning. If your estate plan is will based, it is necessary to make the appropriate beneficiary designation changes.

Only the assets owned by the trust will be available for management during incapacity and avoid probate at your death. So, it’s critical to take inventory of all of your assets, determine how each asset is owned, and talk with your estate planning advisor about whether and how each asset should be transferred to the trust.

Although one can have their trust own all of their property that may not be the best idea. When we address the issue of funding, we of course look at the overall estate plan but we also need to make some practical considerations. Although your trust can own your vehicle, that may not be practical. In general, the assets to address include real estate, bank accounts, certificates of deposit, IRAs, retirement plans, stocks and other investments, partnerships and other business interests, insurance policies and annuities, vehicles, and personal property (such as jewelry and collectibles).

The steps you need to take to transfer title depend on the type of property. Real estate, for example, is transferred by a deed recorded in the county where the property is located. Transferring a bank account may be as simple as executing a new signature card or presenting the bank with a letter of direction. Funding may be more complex requiring contacting the benefits department of the business you once worked for, obtaining the proper form to fill out to change the legal ownership, following up to make sure the transfer has been made.

Funding is a process that can take months depending upon the type of assets to be transferred. Many attorneys merely provide instructions on how to do the funding and leave you on your own to handle it. However, even the most competent and motivated of clients are likely to encounter problems that can end up leaving their trust unfunded or improperly funded. Unfortunately, it is very common for estate planning clients to not take any steps to fund their trust even when given instructions.

At The Law Office of Antoinette Bone, we believe the better approach is for funding to be viewed as a joint venture between you and us. We each have an important role to play in the process. We take care of document preparation and follow-up with third party entities. You will be given tasks that only you can perform. This way, you have peace of mind knowing that when the time comes, your estate plan will work and that you have taken care of everything you own and everyone you love.

Just as estate planning is a process, funding a living trust is an ongoing process. For each substantial asset you acquire, a decision will have to be made as to whether or not it belongs in your trust.

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