While providing your loved ones with a trust is one of the greatest gifts you can offer, navigating the numerous ins and outs of an estate plan necessitates professional legal assistance to ensure that the job is done properly.
Every year I advise dozens of clients on how to manage their trusts, but as the end of our working relationship approaches I worry how they will fare during the next, equally important step in their estate planning- funding the trust.
Why Is Funding a Trust So Important?
A trust must be funded to remain valid. If it is not, your trustees will not even be able to access what you have set aside for them. Your hard work and initial investment in the trust will be worth null. Funding your trust is beneficial as you can avoid probate, save estate taxes, protect inheritances, and provide for your loved ones without future complications.
What you safeguard in your trust can depend on what you want to use the trust for and whether your legal relationship status is single, married, or blended. I recommend that my clients identify which assets they wish to protect using the categories below.
Which Assets Do You Want To Include In Your Trust?
- Life Insurance: You should decide whether you want to name a beneficiary to your life insurance or if you want your life insurance to add towards your estate based on the amount of the life insurance policy’s death benefit. Death benefits can be taxed, and if it is added towards your estate, then the money may be subjected to estate or inheritance taxes. The amount taxed varies between states that may or may not have inheritance or estate tax. The current 2018 federal estate tax exemption for a deceased estate has a limit of $11.2 million or $22.4 million for a married couple.
- Personal Untitled Property: Property that does not hold a title or the name an owner can be funded into a trust through an Assignment of Property document, which lists your untitled items and serves as a proof of your wish to transfer them to yourself so that you can keep it with your trust document. Examples of untitled property may include but are not limited to dishes, artwork, stamps, coins, furniture, books, appliances, jewelry, clothing, computers, and tools.
- Real property: Real property may include your home, land, and other real estate. Even if you owe money to the real estate through loans or mortgage, you can still add it to your living trust so that after death, the property and debt will be passed on to the named beneficiary. If you have property in another state, you can name it in your trust with its location in order to avoid an additional probate proceeding.
- Personal and recreational vehicles: Depending on the state that you live in, you may or may not have to include your vehicles in your trust. Some states allow you to name a beneficiary to transfer your vehicle to after death. Other states may tax you when you transfer the title of the vehicle to another person. Furthermore, probate proceeding may not necessary for transferring ownership depending on your state laws. In the case that you do have to transfer the ownership of your vehicles, you should name a beneficiary and find an insurance company that will work with you so that you can avoid probate.
- Stocks and bonds: Stocks and bonds are typically held by brokerages or mutual fund companies. Thus, it would be easy to set up accounts that will organize your investments and allow you to name your account information in your trust. If you want to transfer your investments to more than one beneficiary, you can create more brokerage accounts or allow your beneficiaries to share an account. An alternative would be to register for a transfer-on-death form, which will allow you to transfer your stocks, bonds, and accounts without probate.
- Bank accounts: Any checking, savings, or bank account can be transferred to another person through the necessary paperwork and changing the name of your account and naming yourself as a trustee for the bank, savings and loan, or credit union. You could also add a “payable-on-death beneficiary” to your bank account so that the amount in your bank accounts will be transferred to the beneficiary after death.
- Non-retirement Investment Accounts: Assets held in individual, tenant, or jointed investment or brokerage accounts are known as non-retirement investment accounts. You can simply change the title to transfer ownership of your account. However, account with plans such as 401(k), 403(b), or IRA require a beneficiary to be named in order to prevent income tax complications.
- Business interests: Stock shares held by small businesses, corporations, partnership interests, or liability company shares can be transferred by renaming the title of the shares and/or interests. If you have a partnership, you can transfer your shares into the trust. However, it is important to check the certificates and agreements to check for transfer restrictions.
While a list like this may seem intimidating, the actual process of funding your trust should not take much of your time if you have a good roadmap. Nobody should have to go through the estate planning process alone, so collect advice from financial specialists. Plus, you should only have to transfer your assets once. (Though the required course of action may vary depending on the category of assets you wish to protect!) Once you have completed the process, your assets will be secured for your family.
The funding of the Trust should be part of the Attorney's Trust Procedure. Then you can advise the Trustee on how to add after obtained assets.
Whether Life Insurance should be the beneficiary depends on the Purpose of the Policy, if the proceeds is for a specific adult person who is capable, the policy should be paid to that person directly. If to fund another purpose, the Trust may be the correct beneficiary.
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