I felt it necessary to write about this because I have seen all too many times what can and does practically happen to make revocable living trusts fail. What is the single biggest point of failure? It is lack of proper funding. The next question I am usually asked is “what the heck is funding?”
Funding is the process of re-titling your assets into your living trust and coordinating your life insurance policies and retirement accounts with your plan. An example of some of the types of assets that need to be re-titled into your trust are bank accounts, your house, non-retirement brokerage accounts and any LLC interests or corporate stock certificates you may own. The purpose of moving your assets into your trust is so that your successor trustee can manage those assets for your benefit in the event of your incapacity and for the private and efficient transfer of that property to your family at death.
Retirement plans and life insurance policies should not be ignored in the process. In many cases, the ideal beneficiary designation on your life insurance policy is your living trust (however, please make sure to consult with me if I am your attorney or your legal counsel before making that determination). In most cases, listing your spouse as the primary beneficiary on your retirement plan is preferable. The contingent beneficiary can be other family members, your living trust or possibly a Retirement Plan Trust. Again, please consult legal counsel before making this important decision.
You have to think about your trust like a nice car that needs gas. If the nice car doesn’t have any gas in the tank, it’s not going anywhere. The trust will not operate to help you and/or your family without the asset in it. You don’t want your family to have to knock on the doors of the probate court because you didn’t transfer the assets to your trust. And it’s not just a matter of more than 5 times the amount of fees as compared to a trust administration.
It’s also a long complicated process that your family doesn’t need to suffer through if you properly fund your trust. It’s important to note for those with minor children that if you don’t properly fund and something happens to you and your spouse, you could be forcing the court to get involved to appoint a Guardian of the Estate of your minor children. Which may or may not be the person you would have selected and its going to cost more because accountings to the court will now be necessary.
The best practice is to have a well crafted and updated trust and ensure that all of the property listed above is in trust title (minus retirement accounts and life insurance policies as they are coordinated with your plan through a beneficiary designation form).
If you have any questions about funding, please know that we are here to support you and we welcome you to call us.
For additional information on estate planning or Geiger Law Office, P.C., please email us at [email protected]ice.net or call us at (760) 448-2220.