The Importance of Funding Your Trust

Revocable trusts are very popular and useful estate planning tools. But the trust will not be effective if you do not transfer title of your assets into the trust. Overall, revocable trusts are an effective way to avoid probate and provide for asset management in the event of incapacity. In addition, revocable trusts (sometimes called “living” trusts) are incredibly flexible and can achieve many other goals, including tax, long-term care, and asset-protection planning.
However, you can’t take advantage of what the trust has to offer if you don’t place your assets into it. If you don’t fund the trust, your assets may have to go through a costly probate proceeding or be distributed to beneficiaries you did not intend. Not funding your trust can undermine your whole estate plan.
To transfer assets to the trust, whether real estate, bank accounts, or investment accounts, you need to retitle the assets in the name of the trust. To place bank and investment accounts into your trust, you need to retitle them as follows: “[your name and co-trustee’s name] as Trustees of [trust name] Revocable Trust created by agreement dated [date].” Depending on the institution, you might be able to change the name on an existing account. Otherwise you will need to open a new account in the name of the trust and then transfer the funds. The financial institution will probably require a copy of the trust, or at least of the first page and the signature page, as well as signatures of all the trustees. As long as you are serving as your own trustee or co-trustee, you can use your Social Security number for the trust.
If you are placing real estate into the trust, you should consult with your attorney to ensure it is done correctly. You should also consult with your attorney before placing life insurance or annuities into a revocable trust. As a general rule, you should not transfer tax-qualified retirement products (like IRAs or 401(k) accounts) into your trust and you should consult with your attorney before naming the trust as the beneficiary of tax-qualified retirement product because that could have negative tax consequences.
Once your trust is fully funded, don’t forget about it. When you acquire new assets, do not forget to add them to the trust. You should review your trust annually to make sure everything is titled properly.
For more information please contact the Law Office of Sean D. Ethington at (661)295-4604 or visit our website at www.ElderLawSite.com.