Including a Trust as part of your estate plan is a smart decision. It allows you to avoid probate, maintain privacy, and distribute your assets to your loved ones while also providing them with a lifetime of asset protection, if you choose it for them. But, here’s the thing you might not know, and is critically important to remember: simply creating a Trust is not enough. For your Trust to work, it has to be funded properly and may need to be updated over time.
Funding your Trust means transferring ownership of your assets from your own name into the name of your Trust. This can include bank accounts, investments, real estate, and other valuable possessions.
By funding your trust properly, you ensure your assets are managed according to the terms of your Trust and will be distributed according to your wishes when you die or if you become incapacitated.
But, if you fail to fund your Trust, it becomes nothing more than an empty vessel. Your assets will not be protected or distributed as intended, at least partially defeating the purpose of creating a Trust in the first place! While your assets can still get into your trust and be governed by your Trust after your death, that means that your family still goes to court to get your assets there, and that is a costly endeavor.
To make sure your Trust works for you, avoid these funding fiascos and work with an attorney who will ensure that everything that needs to get into your Trust does.
Forgetting to Update Your Account Beneficiaries
Many people mistakenly believe that a Will or Trust alone is enough to dictate how their financial accounts should be distributed after they die. However, this isn’t the case. Without proper beneficiary designations on your accounts, your wishes may not be honored and your assets could end up in the wrong hands.
Remember, the beneficiaries you designate on your accounts supersede any instructions in your Will or Trust, so this step is vitally important.
Take a moment to review your various accounts, such as bank accounts, retirement plans, and life insurance policies. Ensure that each account has your Trust named as your designated beneficiary, unless you’ve made different plans for that specific account.
When you are working with a lawyer, make sure your lawyer has a plan for each one of your beneficiary-designated assets, communicates that plan to you, and that the two of you decide who will handle updating your beneficiary designations. Then, make sure you review your beneficiary designations annually. In our office, we support our clients to do all of this with well-documented asset inventories, and a regular review process built into all of our plans.
Your Attorney Didn't Move Your Home Into Your Trust
For many of us, our home is our most important and valuable asset. But if your attorney doesn’t deed your home into your Trust, your home won’t be included under the terms of your Trust if you become incapacitated or pass away.
That means your home could end up going through the long and expensive probate court process in order to be managed during an illness or passed on to your loved ones after you die. If you own a $300,000 home, that means your family could lose up to $15,000 or more just to transfer your home to your trust and then distribute your home pursuant to the terms of the trust - and that’s not including any other assets that would have to go through probate.
A knowledgeable estate planning attorney shouldn’t miss this step, but it happens. And if you’re using a DIY service online to create a Trust without the help of any attorney at all, it’s bound to happen!
That’s why it’s so important to work with a lawyer who takes the time to make sure every asset you own is in your Trust.
Not Reviewing Your Plan and Accounts Every Three Years
You might wonder how not reviewing your estate plan every few years (or anytime there’s a major life change like a marriage, divorce, or addition of a child) could really make your plan worthless. Well, the good news is that failing to review your plan is unlikely to completely eliminate the benefits it provides you because an estate plan is made up of a number of moving parts, not just a Will or a Trust.
But, failing to keep your financial assets up-to-date and aligned with your estate plan can result in huge issues for you and your family and can even make the Trust you invested in worth little more than the paper it’s printed on!
That’s because your Trust can’t control any assets that don’t have the Trust listed as the owner or beneficiary. By reviewing your accounts every three years, you can help catch any accounts that don’t have your Trust listed in this way.
For example, it’s very common for clients to open a new bank account and forget to open the account in the name of their Trust or add their Trust as a beneficiary.
Thankfully, by comparing my clients' financial accounts to their estate plan at least every three years (or when there’s a major life change), I’m able to catch simple oversights like this that could cause their assets to be completely left out of their Trust.
Make Sure All of Your Assets Are Included In Your Plan with Help From Us
Getting your legal documents in place is an important step, but it's equally important to know that the documents themselves are not magic solutions (as magical as they may seem!). Merely creating a Trust or naming beneficiaries on your accounts does not guarantee that your wishes will be carried out unless all of the pieces of your plan are coordinated to work together.
That’s why I work closely with my clients to not only create documents but to create a comprehensive plan that accounts for all of your assets and how each one needs to be titled to make sure your plan works for you the way you intended.
Plus, I offer my clients a free review of their plans and financial accounts every three years to ensure that their plans accurately reflect their lives and their wishes for their assets and loved ones.
If you want to know more about my process for funding your Trust and making sure nothing is ever left out of your plan, schedule a free 15-minute discovery call. I can’t wait to hear from you.
This article is a service of Desmond Law, a Personal Family Lawyer® Firm. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Family Wealth Planning Session™, during which you will get more financially organized than you’ve ever been before and make all the best choices for the people you love.
The content is sourced from Personal Family Lawyer® for use by Personal Family Lawyer® firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own separate from this educational material.