Establishing a trust is a significant first step in estate planning, but its effectiveness hinges on properly funding it during your lifetime; simply creating the document isn’t enough to shield your assets or ensure your wishes are carried out. Funding a trust means transferring ownership of your assets—like bank accounts, real estate, and investments—into the name of the trust itself. This is a crucial process often overlooked, leaving the trust an empty vessel and negating its intended benefits. Roughly 60% of Americans die without a will or trust, and an even larger percentage who *do* have these documents fail to properly fund them, leading to probate court involvement and delays for their heirs.
What assets can I transfer into my trust?
Nearly any asset can be transferred into a trust, including real estate, stocks, bonds, mutual funds, brokerage accounts, bank accounts (checking and savings), vehicles, and personal property. There are a few exceptions, such as certain retirement accounts (like 401(k)s and IRAs) which often have specific rules about beneficiary designations that supersede trust provisions. A common method is to retitle ownership – for example, changing the deed of your home from “John Smith” to “The John Smith Revocable Living Trust.” For bank and brokerage accounts, you’ll typically complete a transfer incident to death form, designating the trust as the beneficiary. It’s important to remember that life insurance and retirement accounts are generally funded by beneficiary designations, not direct transfers of ownership, but these designations *should* coordinate with your trust. A crucial step is to create a “Schedule A” – a detailed list of all assets held within the trust, updated regularly.
What happens if I forget to fund my trust?
I once worked with a lovely woman, Eleanor, who meticulously crafted a complex trust, envisioning a smooth transition of her estate to her children. She was proud of the document, feeling secure in knowing her affairs were in order. Unfortunately, she became ill unexpectedly and passed away before completing the funding process. Her family was devastated, not just by her loss, but by the unexpected trip to probate court, legal fees, and the lengthy delays in receiving their inheritance. What Eleanor thought was a streamlined process, became a painful, expensive and time consuming battle with the courts. The probate process took nearly a year, and the legal fees devoured a significant portion of the estate’s value. This situation underscores the critical importance of completing the funding process, no matter how daunting it may seem. According to a recent study, estates that go through probate cost an average of 3-7% of the estate’s value in fees and expenses.
Is it possible to fund the trust gradually?
Absolutely! Funding a trust doesn’t have to be an all-or-nothing endeavor. You can fund it gradually over time, starting with your most significant assets and adding others as you deem appropriate. This phased approach can make the process less overwhelming and allow you to adjust your strategy as your financial situation evolves. For instance, you might initially transfer your primary residence and investment accounts, followed by smaller assets like vehicles or collectibles. It’s important to maintain accurate records of all transfers and update your Schedule A accordingly. Some attorneys recommend a “pour-over will” to catch any assets inadvertently left out of the trust; this will directs those assets to be transferred into the trust upon your death, but it still requires probate for those specific assets, negating some of the benefits of the trust.
How did one family successfully fund their trust and avoid probate?
I recently helped the Miller family, a couple in their early sixties, navigate the funding process. They were initially apprehensive about the paperwork and potential complexities, but we worked together to create a clear plan. Over several weeks, we systematically transferred their assets – real estate, brokerage accounts, and bank accounts – into their trust. We meticulously updated their Schedule A and ensured all beneficiary designations aligned with their trust. A few years later, Mr. Miller unexpectedly passed away. Because the trust was fully funded, his wife was able to seamlessly access and manage the assets without the need for probate. The transition was smooth and stress-free, allowing her to focus on grieving and honoring her husband’s memory. She often told me how grateful she was that they had taken the time to properly fund the trust, as it provided her with peace of mind and financial security during a difficult time. This highlights the true value of proactive estate planning—not just creating the documents, but ensuring they work as intended.
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
(619) 550-7437
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