Great, you have a trust! Now, is it funded correctly?
Over the years, we’ve discovered that many people make a big mistake. This big mistake catapults their loved ones and assets into the court system. Most of our clients want to avoid probate because it is expensive, time consuming, stressful, and public. Public meaning anyone anywhere can see who got what and how to contact them. Beneficiaries may become victims to nosey neighbors, predators, and unscrupulous “charities.”
What’s the big mistake that causes all of these problems? An unfunded trust.
What does it mean to fund your trust?
Funding a trust is the process of transferring assets from your name into the name of your trust. Often, beneficiary designations are changed to your trust as well.
Funding is accomplished in three ways:
• Changing the title of the asset from your individual name (or joint names if you’re married) to the name of your trust — for example, from Jane Smith to Jane Smith, trustee of the Jane Smith living trust dated Jan. 1, 2017.
• Assigning your interest in an asset without a title (such as artwork, jewelry, collectibles or antiques) to your trust.
• Changing the primary or contingent beneficiary of the asset to your trust. Think life insurance, retirement accounts, and annuities.
Planning tip: Put together a list of your assets, their values, and locations, then start funding the most valuable ones and work your way down. Keep chipping away until your trust is fully funded. We understand this can grow in complexity, and that is why we walk our clients through the process and make it as easy as possible.
For many people, avoiding probate court is a main reason they set up a revocable living trust in the first place. Unfortunately, you are not “done” when the trust documents are signed. If you don’t take the next step to fund, probate court is guaranteed.
Warning: If your trust is left unfunded, you will send your family and assets into probate court.
Which assets should, and should not, be funded into your trust?
In general, you will probably want to fund the following assets into your trust:
• Real estate — homes, rental properties, vacant land and timeshares
• Bank and credit union accounts — checking, savings, CDs • Safe deposit boxes • Investment accounts — brokerage, agency, custody • Notes payable to you • Life insurance — if you don’t have an irrevocable life insurance trust • Business interests • Intellectual property • Oil and gas interests • Cars, trucks boats, motorcycles and scooters
• Personal effects — artwork, jewelry, collectibles, antiques
On the other hand, you will probably not want to fund the following assets into your trust:
• IRAs and other tax-deferred retirement accounts — only the beneficiary should be changed
• Incentive stock options and Section 1244 stock
• Interests in professional corporations
• Foreign assets — in some countries funding an asset into a U.S.-based trust causes adverse tax consequences, while in other countries trusts aren’t recognized or are ignored due to forced heirship laws
• UTMA and UGMA accounts — your minor grandchild is the owner, not you as the custodian; instead, name a successor custodian
Planning tip: Work closely with your estate planning attorney to determine what should go into your trust and what should stay out. Our office can help.
What are the benefits of trust funding?
Funding your trust makes it possible to obtain trust benefits:
• Your trust is easy to update.
• Your trustee, instead of a judge, will take control of your trust assets if you become incapacitated or die.
• Your trustee will have direct access to your trust assets without a court order.
• Your trustee will be empowered to pay bills and manage, invest, sell, and reinvest your trust assets without court intervention.
• Your private wishes will remain private instead of being publicized.
• Settlement time, costs, and frustration are tremendously reduced.
The bottom line on trust funding
A trust has a myriad of benefits, including probate avoidance. Yet, in the end, an unfunded trust doesn’t avoid probate.
Adam Hansen hosts free monthly seminars that show you how to protect your family and avoid guardianship, conservatorship, and probate court proceedings using a living trust. The next seminars are 10:30 a.m. Thursday at Deason Garner Office, 10:30 a.m. Saturday at Foothills Library, and 10:30 a.m. Sept. 19 at Main Library. To RSVP, call (928) 783-4575 or visit YumaEstatePlanning.com.