Most people believe that after signing their estate plan, that they have done what the needed to do. Of course, they are already ahead of most people. However, the most important part of your estate planning, if you have a Trust estate plan…is to fund that trust!

What most people do not realize is that setting up a plan is just the first step. Your Trust is just a treasure chest that is waiting to be filled with the assets it will own. If you don’t follow through with funding your trust, the assets continue to be owned by you.

This could mean those assets end up being transferred during the probate process (if you have a Will). If you counted on the Trust to transfer your assets and you didn’t account for what will happen to them in your Will, the assets you tried so hard to protect could actually be passed using intestacy laws.

What Happens if you do not fund your trust?

Let’s take a married couple holding a house in joint tenancy for example. If the house is not transferred (deeded) into your trust, then when one person dies, the assets pass to the surviving individual.

If however, the assets are solely in one person’s name – then you likley have to go through the probate process. This process is public, it’s sometimes difficult, and it can be expensive. It’s also exactly what people who created a trust specifically wanted to avoid.

Funding: What Should you do

You (and anyone else who creates a Trust) need to follow through with funding your Trust immediately after it is created.

In general, you should transfer most of your assets into your Trust with the exception of:

  • Retirement accounts, such as IRAs, 401(K)s and 403(B)s. Transferring retirement accounts into your Trust can have undesirable tax consequences. However, you likely want to make your Trust the designated beneficiary of the accounts.
  • UTMA, UGMA accounts and other custodial accounts.
  • Life insurance policies. However, life insurance policies may sometimes be put into irrevocable trusts in order to reduce the estate taxes that are due.
  • Vehicles: You may want to leave these outside of the trust, depending upon the state where you live.
  • Small checking accounts: By keeping a small personal checking account that is not a part of the trust, your day-to-day transactions will be easier and you can keep the existence of the trust private.

Putting your home into your Trust can make it much more difficult to refinance, since most lenders require you to remove it from the Trust before approving a refinance loan.

This does not mean that you should not move your home into the Trust. But you should speak with your trusted estate planning attorney first to see if this is a good idea for you, or if other options are available.

Be sure to discuss funding with your attorney

You should set an appointment to discuss with your estate planning attorney. Be sure to discuss exactly what types of assets you plan to move into your Trust. Also spend time discussing what the legal steps are that you need to take in order to move them.

A good estate planning attorney will help with the process of moving assets. And will do this so that you will be able to reduce tax liability, protect assets, and make the most of the estate plan you have created.

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