You Signed Your Trust, But is Your Trust Funded?

Your home may be in the trust but what about everything else?

Signing a revocable living trust is a huge steps towards your planning and family protections.  It is the foundation of it all; but, by itself, it is an empty shell. Signing the trust does not complete the plan.

A trust needs to have all assets transferred to the trust in order for the trust to be able to manage those assets.  This process of transferring the assets to the name of the Trust is called Funding.

 Without funding, a carefully prepared trust may sit on a shelf as an empty shell with no assets to control or manage.

Preparing and signing the trust is always the first step.

Your attorney is only responsible for getting your documents drafted and making sure they are signed correctly. Pretty much, your attorney helps you set up a good foundation so you can build on it. Once that foundation, your trust, is ready, then you can add your assets to the trust so it does what it is meant to do, help you manage and protect your assets while you are alive if you can do so yourself and to protect and manage for your assets for your loved ones when you are no longer with them.

It is your responsibility, as the client, to make sure that all your assets are properly titled or coordinated with the trust, and once that happen, we say that the Trust is funded. 

Your attorney can help guide you or do it for you, but Funding is the second step, and not part of the drafting/signing of your documents. Once documents are signed, unless otherwise agreed in writing, your attorney is not responsible for the funding of your trust, you are. Remember it is your plan, your life and your family!

So, Funding means:

Funding means making sure every asset has a deliberate place in the estate plan. Some assets should be owned by the trust while others may pass through a beneficiary designation, assignment, transfer-on-death arrangement, or another method that coordinates the transfer of the asset at a specified time to the trust.

The right method depends on the type of asset, the client’s goals, tax considerations, and the language of the Trust. For example, a deed may be used for real property;  bank or investment accounts may require new ownership documents; business interests may require assignments, consents, or changes to company records.

Certain assets, including retirement accounts, require special care because changing ownership may create serious tax consequences. But ultimately, all these actions are all part of the “funding” of the trust.

Having only the house in the trust is not enough

Most attorneys help the client fund their home to the trust right away. This may give the client the impression that the trust is fully funded.  Sometimes, the house may be the largest asset, but it is rarely the only one. Bank accounts, investment accounts, other real estate, business interests, life insurance, annuities, retirement benefits, valuable personal property, and later-acquired assets must also be reviewed and funded.

This does not mean every asset should be retitled in the name of the trust. It means every asset should be planned for. If an asset is intentionally left outside the trust, there should be a clear reason and method for what happens with that asset during incapacity and after death. Nothing important should be left to assumption.

Why the responsibility remains with the client?

Your attorney prepares the legal plan, explains the funding process, and may prepare certain transfer documents as contracted with the client. But the attorney cannot complete every step without the client.

The attorney cannot walk into every bank, brokerage, insurance company, employer benefits office, or later transaction on the client’s behalf and simply tell them to retitle assets or change beneficiaires. Each one of these requires paperwork, signatures and oftentimes, the client’s presence. Even different banks or financial institutions may have different forms, procedures and requirements that the client must do him/herself.

In addition and just as important, your financial life keeps changing. You may open a new account, refinance a property, buy another home, start a business, inherit an asset, or replace an old insurance policy years after the trust was signed. Your attorney may never know about those changes unless you inform your attorney. It is the client’s ultimate responsibility to make sure these changes are noted and funding to the trust is updated. Your attorney can help you along the way, but you are the one responsible to make the process work.

Funding is not a one-time clerical task. It is part of maintaining your plan. Thus, it is imperative, super important, undeniably a big requirement that cannot be ignores if the client wans his/her trust to work. (If you have not done it and you are not sure all your funding is right and in place, make sure to call your attorney for guidance and support).

What can happen when a trust is not funded

Assets not property held under the trust could require a  Probate, the process in Court to transfer properties to benefiaries when there is no Will or only a Will. If your trust is not prperly funded and an asset or assets were not properly funded, you would need to hire an attorney to go through the court process and you will have what is called a “Pour Over Will.” This is like any other Will, just that it will tell the court to transfer your assets (not yet in the trust) to your trust so your trust can give it your beneficiaries or heirs. So, it would require a double process, which can add to cost and time and would open the estate to public scrutiny as a Probate is public record.

While the above is true if you pass away, if you become incapacitated and your assets are not funded to the trust, your trustee cannot manage those assets. A person under a power of attorney could, but would not have to follow any of your trust instructions over that asset.

A practical trust funding checklist

• Review every deed for real estate owned in Florida and anywhere else in the United States.
• Confirm the ownership of checking, savings, money-market, and certificate-of-deposit accounts.
• Review brokerage and other non-retirement investment accounts.
• Review business interests and the governing documents for transfer restrictions.
• Review life insurance and annuity beneficiary designations.
• Review retirement-account beneficiaries with legal and tax guidance; do not retitle retirement accounts to the trust without advice.
• Identify vehicles, valuable personal property, promissory notes, and other titled assets.
• Keep copies of deeds, assignments, account confirmations, and beneficiary-designation forms with the estate-planning records.
• Revisit funding after a purchase, sale, refinance, inheritance, new account, business change, marriage, divorce, birth, or death.
• Schedule periodic estate-plan reviews so the documents and the assets continue to work together.

Your trust should work in real life

Estate planning is not finished merely because documents were signed or because the house was transferred to the trust. The legal documents, ownership of every asset, beneficiary designations, and future financial decisions must point in the same direction. A fully coordinated and regularly reviewed plan is far more likely to accomplish what you intended for yourself and the people you love.

If you have a trust but are uncertain whether it is properly funded, then you need to make sure. So, gather a list of your assets and let us reviw it with you. You can schedule a FREE 15 minute Trust Funding Review Call with the attorney over the phone to review your current fundign situation.

If you do NOT have a trust, you can Schedule a Life Planning And Beyond Session wiht the Attorney via zoom.

Or you can just give us a call and we can talk about your needs.

Tel. Miami: 305-456-7158 / St. Lucie County: 772-405-1984

Yahima Suarez, PA

Important note: This article provides general educational information and in no way constittues legal, tax, or financial advice. Trust funding decisions should be reviewed for the specific client, asset, and estate plan. Reading this article does not create an attorney-client relationship.