Some people, for a variety of reasons, choose to have a revocable living trust as part of their estate planning strategy. Ideally, upon their passing, the trust will serve as a mechanism to accomplish their estate planning goals while avoiding a probate.
Many clients work with us to develop the trust, meet with us to sign the trust and other estate planning documents, and then sigh in happiness that they are now “done.” We then have to deliver the bad news, which is, “Not so fast. Sorry, but there’s one more step to go in this process.” Once the revocable living trust comes into existence, the next step is to make sure that it is properly funded.
What does it mean to “fund” a trust? In essence, the trust is designed as a vehicle to administer and ultimately distribute assets in its control. For a trust to control the distribution of an asset, the asset must first be transferred to the trust. All assets belonging to a person do not magically come to be classified as trust assets upon the execution of the trust document. Instead, after the trust is created, assets need to be carefully and methodically transferred, one by one, into the trust. This process is known as “funding” the trust. Those assets generally include bank accounts, general taxable investment accounts and real property. For tax-deferred accounts such as individual retirement accounts (IRA) and life insurance policies, the account would remain in an individual’s name but the trust will need to be identified in the beneficiary designations if the intent is for the trust to control the distribution of the account’s funds. Our office assists our clients in the trust funding process and also prepares a schedule to the trust which identifies the trust assets.
Once the trust is initially funded, our clients still have to remain vigilant about keeping the trust funded. Over time, clients acquire new assets. Each of these assets, when acquired, needs to be placed in the trust. And the trust schedule should then be updated to include the new assets.
Revocable living trusts aren’t for everyone. To work properly, the trust cannot be signed and then thrown in a drawer without further consideration. If you have questions about whether you need a revocable living trust, or if your trust is properly funded, please contact my office. We’d be happy to help you sort through it.
Photo credit: Jerry Bunkers on Flickr