It’s far too often that I sit in my conference room reviewing Trust documents and financial statements of prospective clients, only to find out that in many cases their accounts are not titled in the name of the Trust. Is it the misbelief that by simply having a Trust that their assets will be distributed accordingly? Could it be that the estate planning attorney never informed them to “fund” the Trust? Is it simply that they were informed but never got around to doing it? My experience is that all of these have contributed to one of the most costly, yet preventable errors I see each week in my office.
So what can be done if you have a Trust and are unsure if it is “funded”?
#1) Check all of your Deeds on your real estate holdings
Whether a primary residence, vacation home, timeshare, or rental property, you will want to confirm that all of them are in the name of your Trust. In many cases, the estate planning firm that drafted your Trust took care of this transfer for you. But be aware! If you have since refinanced your home, in most cases the lender would have required you to remove the name of the Trust for financing purposes. It’s all too often that when this happens, the homeowner forgets to change the Deed back into the name of the Trust. In some cases, the estate planning firm never handled the recording of the Deed or their was simply an error when processing. Either way, all of your Deeds should be checked to confirm they are in the name of your Trust.
#2) Review your financial statements
Gather your bank and investment/brokerage statements that are not part of an IRA or retirement plan. Confirm that each of these accounts have your Trust listed as the owner, typically confirmed through either calling the institution or reviewing the titling on your statements. If you are looking at your statement and you notice no reference to the Trust, it most likely means that it is not in the Trust.
#3) Examine your annuity and life insurance policies
Verify the parties to these contracts: insured/annuitant, owner, and primary and contingent beneficiaries. In these types of policies, you will be able to name a primary and contingent beneficiary directly with the company. In most cases, I encourage my clients to list the Trust as primary or contingent beneficiary on their life insurance policies. In some cases, it makes sense to list the spouse as primary and the Trust as contingent to more efficiently distribute the funds to a surviving spouse. The rules surrounding annuity beneficiaries were changed a few years ago. This is a particular area where I encourage consulting a financial or tax adviser that has experience in understanding these changes and navigating the tax issues surrounding them. Don’t assume that naming the Trust as primary beneficiary will achieve your estate planning AND tax planning goals!
#4) Address IRA’s and Retirement Plans separately
Individual Retirement Accounts (IRA’s) and Retirement Plans must be treated on a standalone basis when determining if a Trust should be listed as a primary or contingent beneficiary. This will be the subject matter of another blog on another day. Just keep in mind that the “ownership” of your IRA’s or retirement plans should not be changed to the name of your Trust.
Take Action Now
Confirming your assets are in the Trust takes very little time and no money whatsoever. Don’t assume that your estate planning attorney has taken care of this issue. In most cases, the firm that handled creating your Trust document will only change ownership on real estate located in the state they are licensed to practice law. The attorney will often produce “letters of instruction” as part of their services, but not actually handle the “funding” of your Trust.
If you have a Trust and have not conducted a “Funding Audit”, you are putting your family in jeopardy of heading to probate court. Delays will occur at your death or incapacity if the assets themselves are not in the Trust. Remember, thing’s don’t just jump into the Trust – they have to be put there.
If you would like assistance in conducting your Trust “Funding Audit”, please don’t hesitate to reach out to my team at Ensemble Wealth Management. We can be reached at 866-582-7564 or firstname.lastname@example.org.
Article written by Michael Clark, CFP®