Trust funding is the most overlooked and most important part of a client’s job after an estate plan is created. Failing to do it properly can completely undermine your family’s goals and render the plan mostly useless. Clients who come to me to review years-old existing plans seldom need significant changes to the paperwork, but 9 out of 10 of them have failed to adequately fund their trust. In doing so they are jeopardizing the most basic functions of the trusts that they have made.
So what is trust funding and why is trust funding essential?
Forbes’s recent article entitled “Don’t Overlook Your Trust Funding” looks at some of the benefits of trusts.
Avoiding probate and problems with your estate. If you’ve created a revocable trust, you have control over the trust and can modify it during your lifetime. You are also able to fund it, while you are alive. You can fund the trust now or on your death. If you don’t transfer assets to the trust during your lifetime, then your last will must be probated, and an executor of your estate should be appointed. The executor will then have the authority to transfer the assets to your trust. This may take time and will involve court. You can avoid this by transferring assets to your trust now, saving your family time and aggravation after your death.
Protecting you and your family in the event that you become incapacitated. Funding the trust now will let the successor trustee manage the assets for you and your family, if your become incapacitated. If a successor trustee doesn’t have access to the assets to manage on your behalf, a conservator may need to be appointed by the court to oversee your assets, which can be expensive and time consuming.
Taking advantage of estate tax savings. If you’re married, you may have created a trust that contains terms for estate tax savings. This will often delay estate taxes until the death of the second spouse, by providing income to the surviving spouse and access to principal during his or her lifetime while the ultimate beneficiaries are your children. Depending where you live, the trust can also reduce state estate taxes. You must fund your trust to make certain that these estate tax provisions work properly.
Remember that any asset transfer will need to be consistent with your estate plan. Your beneficiary designations on life insurance policies should be examined to determine if the beneficiary can be updated to the trust.
You may also want to move tangible items to the trust, as well as any closely held business interests, such as stock in a family business or an interest in a limited liability company (LLC). Ask an experienced estate planning attorney about the assets to transfer to your trust.
Fund your trust now to maximize your updated estate planning documents. Ask your Chicagoland estate planning attorney for specific guidance on how you should transfer your assets, and how to handle assets that you may acquire in the future.
Reference: Forbes (July 13, 2020) “Don’t Overlook Your Trust Funding”