Creating a Revocable Living Trust is a crucial step in estate planning, providing a way to manage your assets and ensure they are distributed according to your wishes upon your death. However, simply setting up a Revocable Living Trust is not enough to reap the full benefits; funding the Revocable Living Trust properly is essential for it to function as intended. Trust funding involves transferring your assets into the Revocable Living Trust either during your lifetime or upon your passing, and it requires careful planning and execution. Below, our friends at McCarthy Law, LLC offer tips and tricks to help you effectively fund your Revocable Living Trust and avoid common pitfalls.
Understanding Trust Funding
Trust funding is the process of transferring ownership of your assets to your Revocable Living Trust. This step is crucial because any assets not placed in the Revocable Living Trust will not be governed by its terms. Instead, such assets may be subject to probate, which can be time-consuming and costly.
Tips And Tricks For Effective Trust Funding
1. Start with a Comprehensive Inventory
Begin by creating a detailed inventory of all your assets. This includes real estate, bank accounts, investment accounts, retirement accounts, life insurance policies, personal property, and business interests. Having a complete list will help you ensure that all assets are appropriately transferred to the Revocable Living Trust, depending on such transfer wishes.
2. Retitle Real Estate
One of the most significant assets to transfer into a Revocable Living Trust is real estate. To do this, you need to change the title of your property to the name of the Trust. This usually involves preparing a new deed and recording it with the appropriate county office. Consulting with a trust lawyer can help ensure the deed is correctly prepared and recorded.
3. Assign Personal Property
Personal property such as jewelry, art, collectibles, and other valuable items should also be assigned to the trust. This can be done through a written assignment document that lists the items and states that they are being transferred to the trust.
4. Update Beneficiary Designations
For assets like bank accounts, life insurance policies, investment accounts, and annuities, you can name the Trust as the beneficiary. This ensures that these assets will be managed according to the terms of the Trust upon your death. It’s essential to consult with a financial advisor or attorney to understand the tax implications and ensure the designations align with your overall estate plan.
7. Use a Pour-Over Will
A Last Will and Testament that is designed as a “Pour-Over Will” acts as a safety net, ensuring that any assets not transferred to the Trust during your lifetime are transferred to the Trust upon your death. This can help capture any assets you may have acquired later in life or overlooked, although you will be in Probate Court to initiate such transfer.
8. Review and Update Regularly
Trust funding is not a one-time event. Regularly review your Trust and asset inventory to ensure that all new assets are appropriately transferred. This includes updating titles, beneficiary designations, and assignment documents, as needed.
9. Work with Professionals
Estate planning attorneys, financial advisors, and tax professionals can provide valuable guidance and ensure that your Trust is funded correctly and regularly. They can help navigate complex legal and financial considerations, ensuring that your Trust operates as intended.
Common Pitfalls To Avoid
1. Procrastination
Delaying the funding process can result in incomplete or improper transfers, potentially causing assets to be subject to probate. Start the funding process as soon as the Trust is established to ensure you appropriately allocate time for completion.
2. Incomplete Transfers
Ensure that all necessary paperwork is completed and properly filed. Incomplete transfers can leave assets outside the trust, undermining your estate plan.
3. Ignoring Small Assets
Even smaller assets should be considered for transfer to the trust. Every asset, regardless of its size, contributes to the overall effectiveness of your estate plan.
4. Overlooking Digital Assets
Digital assets such as online accounts, cryptocurrencies, and intellectual property may also be included in your Trust. Ensure that you have documented access credentials and that these assets are transferred to the Trust.
Funding your Revocable Living Trust is a critical step in ensuring your estate plan functions as intended. By taking a comprehensive approach and following these tips and tricks, you can effectively transfer your assets to the Trust, providing security and peace of mind for you and your beneficiaries. Regular reviews and updates, along with professional guidance, can help you maintain a well-funded Revocable Living Trust that meets your long-term goals and objectives.
All information and content provided is for information purposes only and should not be interpreted or construed as legal advice. You should always contact your Estate Planning Attorney and tax advisor to discuss funding specific to your Trust, as such retitling/beneficiary designations could be averse to your plan and/or have important tax consequences.
