When you go to the effort to create a trust as the centerpiece of your estate plan you quickly learn that trust funding is an essential part of making sure the trust works as it’s supposed to. “Funding” is the process by which property is correctly titled in the name of the trust, or otherwise directed to the trust through beneficiary designations. Most real estate, bank accounts, and many vehicle titles will be transferred to the trust by a title change. Life insurance, retirement accounts, and other assets are often addressed through beneficiary designation forms. Getting trust funding right is exceedingly important; if property isn’t titled or designated correctly, much of the benefit of the estate plan quickly fades.
Trusts are elegant estate planning tools because as the official title owner of property, it’s possible to avoid conservatorship proceedings when the trust creator becomes incapacitated from a disability or illness, and to avoid probate proceedings when the creator dies. In each case the trustee selected by the trust creator can simply continue to manage the trust property as the creator designed. But for that to work as intended, funding must be carefully performed and continuously managed.
Unfortunately, this is where many trusts break down. Often, funding doesn’t happen properly when the trust is first implemented. Folks get the trust name wrong, they make a simple mistake in the paperwork, someone at the bank messes up, a beneficiary designation form gets missed…
And it’s worth noting that like the estate planning process itself, funding isn’t a one-time task. After a trust is created and initially funded, as time goes on it can easily get “unfunded.” Like the facts that impact your estate plan, your assets will change over time. As they change, it’s imperative to make sure your trust remains at the center of your plan.
For example, if you change banks, did you make sure to put your new accounts in the name of your trust? What about that new life insurance policy or investment account? What about the ski cabin or condo? If you refinanced your house, did you make sure it got back into your trust correctly? If you roll your 401k to an IRA, did you make sure the beneficiary designation form is synchronized with your estate plan?
Trust funding can be confusing and it’s a process that must be maintained for a trust to work. Successful funding is the difference between an estate plan that looks good on paper and one that actually does what it’s supposed to do when it really matters.
As an aside, nearly all of our estate planning clients choose to participate in our Evergreen Estate Legacy Program. That program allows us to work with individuals and families throughout each year to help ensure that the effort and expense they went to in implementing their trust does what it’s supposed to do when it matters most. To learn more about our Legacy Programs for estate and business planning strategies, please contact us at [email protected].