Incorporating a Trust into your estate plan is a wise move. It helps you sidestep probate, secure privacy, and distribute your assets to your beneficiaries, while possibly offering them lifelong asset protection, if you opt for it. But an important detail that you might be unaware of and need to keep in mind is: merely creating a Trust doesn’t suffice. Your Trust needs to be properly funded and updated as time passes for it to function effectively.
Properly funding your Trust implies transferring your assets’ ownership from your personal name to your Trust’s name. This encompasses bank accounts, investments, real estate, and other high-value possessions.
Through adequate funding, you ensure your assets are managed as per your Trust’s terms and will be distributed as per your wishes when you pass away or if you become incapacitated.
However, an underfunded Trust is virtually an empty shell. Your assets won’t be protected or distributed as planned, thereby defeating the initial purpose of establishing a Trust to some extent! Although your assets can still be moved into your Trust and managed by its terms after your death, it means that your family would have to go through a legal process to get your assets there, which can be time consuming and expensive.
To ensure your Trust functions as intended, steer clear of these funding pitfalls and engage a lawyer who will guarantee that all necessary assets are correctly transferred into your Trust.
Neglecting to Update Your Account Beneficiaries
Many individuals often erroneously think that a Will or Trust by itself suffices to dictate the distribution of their financial accounts after they pass away. However, this isn’t the reality. In the absence of appropriate beneficiary designations on your accounts, your intended distributions might not be respected, potentially resulting in your assets being transferred to unintended recipients.
Bear in mind that the beneficiaries you specify on your accounts override any directives in your Will or Trust, hence the significance of this step cannot be overstated.
Spare some time to inspect your various accounts, such as bank accounts, retirement plans, and life insurance policies. Make sure that each account has your Trust nominated as your beneficiary, unless you have alternative plans for that specific account.
When collaborating with a lawyer, ensure that your lawyer has a strategic plan for each of your assets designated to a beneficiary, clearly communicates this plan to you, and together you decide who will be responsible for updating your beneficiary designations. Subsequently, ensure that you review your beneficiary designations yearly. In our practice, we aid our clients in accomplishing all these tasks through comprehensive asset inventories and a routine review process incorporated into all of our plans.
Your Attorney Failed to Transfer Your Home into Your Trust
To many of us, our home represents our most significant investment. However, if your attorney fails to transfer the deed of your home into your Trust, it won’t be governed by the stipulations of your Trust in the event of your incapacitation or demise.
Consequently, your home might have to undergo a lengthy and costly probate court procedure for management during a health crisis or inheritance allocation after your death. For a home valued at $300,000, this could result in your family losing $15,000 or even more simply to move your home into your trust and then distribute it according to the trust’s provisions. This doesn’t even take into account any other assets that may also require probate.
While a proficient estate planning attorney should not overlook this crucial step, it happens. Moreover, if you’re using a DIY online service to establish a Trust without any legal assistance, errors are inevitable!
Hence, it’s crucial to engage a dedicated attorney who will meticulously ensure all your assets, including your home, are incorporated into your Trust before concluding their services.
Failing to Review Your Plan and Accounts Every Three Years
You might question how neglecting to revisit your estate plan every few years could potentially render it useless. Fortunately, not reviewing your plan regularly doesn’t entirely negate its advantages as an estate plan consists of multiple components, not merely a Will or Trust.
However, failure to keep your financial assets current and in alignment with your estate plan can lead to serious problems for both you and your family. It could even reduce the Trust you have invested in to being as valuable as the paper it’s written on!
This is because your Trust can’t govern any assets that don’t list the Trust as the owner or beneficiary. By examining your accounts every 3 years, you can identify and correct any accounts that don’t have your Trust listed appropriately.
For instance, it’s quite common for clients to set up a new bank account and forget to establish it under their Trust’s name or designate their Trust as a beneficiary.
Thankfully, by cross-referencing my clients’ financial accounts with their estate plan at least once every 3 years, I’m able to catch simple oversights like this that could cause their assets to be completely left out of their Trust.
Ensure All Your Assets Are Incorporated Into Your Plan With Your Attorney’s Assistance
Finalizing your legal documents is crucial but understanding that these documents alone don’t provide magical fixes is equally important. Simply forming a Trust or specifying beneficiaries on your accounts doesn’t ensure your wishes will be honored unless all elements of your plan are synchronized to function in harmony.
If you lack expertise in estate planning, attempting to align these components by yourself will lead to complications.
That’s why I collaborate closely with my clients to not just draft documents, but also to construct a comprehensive strategy that encompasses all their assets and outlines how each should be titled to ensure their plan functions as intended.
Furthermore, I provide my clients with a complimentary review of their plans and financial accounts every three years, ensuring their strategies accurately represent their current circumstances, their desires for their assets, and their loved ones.
If you’re interested in learning more about my approach to funding your Trust, click to schedule a free 15-minute discovery call. I look forward to connecting with you.
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.