Creating a revocable living trust is a smart estate planning move. It offers flexibility during your lifetime and can help your loved ones avoid the time-consuming and costly probate process after you’re gone. However, there’s a critical step that many people overlook: actually funding the trust.
The Problem with an Empty Trust
Think of your revocable trust as an empty container. Simply creating the trust document doesn’t accomplish all your goals if you do not either a.) put your assets in the trust or b.) designate the trust as the beneficiary of assets. Unfortunately, this is a surprisingly common mistake. People work with an attorney to establish a trust, sign the paperwork, and assume they’re all set. But without proper funding, the trust may be essentially worthless when it comes to avoiding probate.
What Does “Funding” Really Mean?
Funding your trust means transferring ownership of your assets into the trust’s name or designating the trust as your transfer-on-death or pay-on-death beneficiary. This might include retitling your home with either a deed of gift or transfer on death deed, transferring bank and investment accounts or designating your trust as beneficiary, or assigning other property to the trust. Instead of owning assets in your individual name with no beneficiary, the trust either becomes the owner or the beneficiary upon death.
The Consequences of Not Funding
Here’s the reality: any asset that remains in your individual name at death with no beneficiary will likely need to go through probate, regardless of whether you have a trust. That vacation home you meant to transfer? It goes through probate, and if the property is out of state, that means probate in your home state and the other state! The investment account you forgot about? Probate again. Even with a meticulously drafted trust document, unfunded assets won’t receive the benefits you planned for.
It’s Not a One-Time Task
Funding your trust isn’t just something you do once and forget about. As you acquire new assets—whether it’s a new bank account, investment property, or other valuable items—you need to ensure they’re properly titled in your trust’s name or designated to transfer to the trust.
Special Considerations for Retirement Accounts
Whether you name your trust as the beneficiary of your retirement accounts is a question you should discuss with your estate planning attorney. This is an important planning decision that depends on your specific family circumstances and goals, while considering possible tax consequences, so be sure to discuss it with your attorney before making any changes to your beneficiary designations.
Getting It Right
The good news is that with proper guidance, funding your trust doesn’t have to be overwhelming. Robyn Ellis has extensive experience helping clients not only create comprehensive estate plans but also ensure they’re properly implemented. She can review your current situation, identify which assets should be transferred to your trust, and guide you through the funding process to ensure your estate plan works exactly as intended.
Don’t let your careful estate planning go to waste. Contact Vested Partners today to make sure your trust is fully funded and ready to protect your legacy. Click here to visit our website or call our office at (540) 389-6060.
Legal and fiduciary services offered through Robyn Smith Ellis PLC.Investment advice offered through Ellis Financial Group LLC, a Registered Investment Advisor in the state of Virginia.Insurance products offered through Ellis Insurance Services LLC.
