Trust Funding – The Critical Second Phase of Trust Planning
This week’s hypothetical is one that we see in practice all the time at Wakefield Law. Many clients, or loved ones of clients, have gone through all the time and expense of working with an attorney to put together your estate plan with a family trust or separate trusts. However, there is still a huge job left to handle! That job is trust funding.
If You Choose a Revocable Living Trust as a Part of Your Estate Plan, You Need to Fund It
Including a Revocable Living Trust as a part of your estate plan is a highly effective tool. 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 or multiple trusts 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, the process for estate planning using trusts isn’t over as soon as it is signed. 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. However, there’s nothing inside. You have to fund your trust, meaning you have to move your assets into the trust, where they will become subject to the rules you’ve written.
How Do You Move Assets into a Trust in Virginia?
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 immediately 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.