TRUST FUNDING: The often-forgotten crucial second phase of trust estate planning
At Wakefield Law, we are often helping clients in drafting Revocable Living Trusts. There are many critical steps that go into the trust preparation process, but we are always very clear with clients that the drafting and signing of the trust is only the first phase of the trust process. You must, without fail, make sure your assets transfer from your own names into the trust! If you fail to do so, it can often be that the trust is not worth the paper it’s written on.
If You Choose a Revocable Living Trust as a Part of Your Estate Plan, You Need to Fund It
So, you have chosen to include a Revocable Living Trust as a part of your estate plan. Why? Probably because you were interested in taking advantage of one of the trust’s benefits. For those of you who need a refresher, Revocable Living Trusts can:
Cut down on the time and expense associated with navigating the probate process
Help your loved ones avoid the hassle of gathering and gaining access to your assets after you pass
Give you the best control possible over when and where your assets go after you pass away.
If you haven’t yet considered a trust as a part of your estate plan, it really is worth taking a look. These and many other benefits are why many of our clients at Wakefield Law prefer to use a Revocable Living Trust as a part of a comprehensive estate plan.
However, for the sake of this blog post, let’s say you’ve already chosen to incorporate a Revocable Living Trust into your estate plan. Now what? You wrote out the trust instructions, you’ve named yourself and your spouse as the initial trustees, and you’ve designated for successor trustees for the future. You even included some specific language designed to provide for your minor children if you should pass before they reach adulthood. Is that all? Are your assets secured? Nope!
Unlike a Will, a Revocable Living Trust doesn’t become effective as soon as it is signed. Or rather, it does become a legally enforceable document, but it’s empty. Think of your Revocable Living Trust as a bank account for which you get to write the rules. You “open the account” by creating the trust. You write the rules for the trust. But, there’s nothing inside. So, you must fund your trust, meaning you have to move your assets into the trust, where they will become subject to the rules you’ve written. Make sense?
How Do You Move Assets into a Trust in Virginia?
Typically, at this point in the estate planning process, your attorney will give you an option. The trust has been created. Would you like to fund it yourself or do you want the attorney to fund it for you? Of course, having the attorney fund it for you is the easiest option, but it does typically cost more than doing it yourself. So, how hard is it to fund your trust on your own?
Well, the answer depends on the assets you want to place in your trust. For things like bank accounts, stocks, bonds, brokerage accounts, insurance policies, and retirement accounts, you can typically request a Beneficiary Designation Form from the financial institution holding your account. On the form, you would change your beneficiary designation from the name of an individual to the name of your trust. By doing so, these financial assets will automatically pass to the trust upon your death. However, there is another option. For some assets, you can choose to change the ownership to the trust right now. Instead of being held by you, as an individual, some of these assets may be able to be held by the trust right away. Since you are the initial trustee, you maintain complete control over your assets. However, if you become ill or die, there would be no transfer of ownership of these financial assets. Instead, the successor trustee would simply become the new decision maker.
For assets such as real estate and tangible personal property, things are a tiny bit more complicated. Since tangible assets don’t typically have titles (think about things like furniture, art, and jewelry), you will have to create a separate document transferring ownership of your personal assets to the trust. Property that does have a title (such as automobiles, boats, and real estate), can be retitled with the state, if appropriate.
Your Trust is a Living Set of Documents Because Assets are Not Static
Estate planning is an ongoing process, not a single action taken once. This is because property ownership, preferences, and family structure are not static. We all know that estate plans need to be updated if a person is born or dies or if family members get married or divorced. However, there is another, very dynamic part of your estate plan that is changing all the time: your assets. Since your current estate plan only reflects your current asset portfolio and property ownership, it will need to be updated on a regular basis. We recommend updating your estate plan about every three years and even more often if you buy or sell a home, get married or divorced, or have any significant changes in your financial landscape.
Again, let’s go back to the bank account analogy. If you create a trust this year and fund it with the assets you have now, but then next year you buy a vacation property near the beach, the vacation property will not be covered by your trust unless you purchase the property in the name of the trust or purchase it and then re-title it into the trust.
If This All Sounds Too Much, Don’t Worry
As I mentioned, it is of course easier to have your attorney do all of this funding for you. Depending on the time and attention you want to dedicate to maintaining your trust, it may make sense to work with your attorney to fund the trust than to do it yourself. Either way, Wakefield Law is here to make sure you are familiar and comfortable with this process. Give our office a call to get started today at 703-771-9740.