For many clients, a revocable living trust is a valuable tool to ensure that the client’s finances are well managed during periods of incapacity and that the client’s loved ones are financially secure upon the client’s death. However, signing the trust agreement doesn’t end the estate planning process. The team (client, attorney, financial advisor, insurance agent, etc.) must take a final, crucial step–funding the trust.

What is Trust Funding?

Trust funding is the process of transferring the ownership of accounts and property to the trust during the client’s lifetime, or designating the trust as a beneficiary of an account or piece of property so that the trust will receive ownership upon the client’s passing. Because of your close relationship and knowledge of the client’s financial situation, you are an excellent resource to assist them in the proper funding of their trust.

What Should Be Funded into the Trust?

Clients likely own many different types of accounts and property. Some, like investment or brokerage accounts, are best funded into a trust by changing the ownership from the client individually to the trust (or trustee’s of the trust) using a change of ownership form. For other items whose ownership cannot be formally changed, such as jewelry, collectibles, and antiques, ownership can be transferred to the trust through an assignment of property document. There may also be items best transferred to a trust at the client’s death through the use of a beneficiary designation, such as a small checking account used for household expenses. Because our clients have a wide variety of accounts, property, and planning objectives, we encourage our clients to work closely together with us so together we can determine the best course of action for funding their trusts.

What Shouldn’t Be Funded into the Trust? Does This Mean These Items Have to Go Through Probate?

Some assets are unique and need to be handled differently during the estate planning process.

  • The ownership of an individual retirement accountand other tax-deferred retirement accounts should not be transferred to the trust. Under the right circumstances, however, it may be wise to name the trust as a primary beneficiary or contingent beneficiary. Regardless of who is named as a beneficiary, these accounts will not go through probate if a beneficiary is named. Due to the tax considerations surrounding these types of accounts, it is best to consult with us before making any changes to these accounts or their beneficiaries.
  • Automobiles, boats, motorcycles, or other recreational vehicles should remain in your clients’ names. In the event of an accident, a potentially injured party could be more likely to sue the client if a trust owns the vehicle, seeing trust ownership as an indication that the client has deep pockets. Additionally, most states have processes in place to transfer these types of property outside of formal probate. Be aware, however, that some states have strict limits on how many vehicles can be transferred outside of probate. It’s important to check the rules for each state where the client has motor vehicles registered.

Trust Funding as the First Step for Trust Administration

By helping your clients fund their trust, you are taking the first step to making sure the trust administration process will go smoothly. A properly funded trust will:

  • Make it easier for the successor trustee to access and manage the necessary accounts and property should the trustee need to step in and care for an incapacitated client.
  • Provide the successor trustee with a preliminary list of accounts and property to be used in preparing the inventory for the trust’s beneficiaries at the client’s death.
  • Furnish the successor trustee with a complete roadmap for how the client’s trust should be administered. All the successor trustee will need to do is follow the instructions.

Your Role in the Trust Funding Process

A properly funded trust is crucial in the success of the client’s estate planning and administration. As your client’s trusted advisor, you can play an important role in ensuring a successful outcome.

  • Review the current ownership and listed designated beneficiaries of the client’s accounts. Life can change quickly, and clients may not remember to complete the ownership changes or make the necessary changes in their beneficiary designations. Especially if a client has married, divorced, become widowed, or had children, it is important for them to review their accounts and make sure they match their planning objectives.
  • Ask the client what estate planning they have done. If the client does not have an estate plan in place, you can offer a great service by recommending that they engage an experienced estate planning attorney to have the plan prepared. Your trusted advice may be just the motivation they need to take the next step. If the client has had their planning done by a trusted attorney, it is important to remind the client to review the documents periodically. As previously mentioned, much can change in a short period of time that might affect the client’s estate planning.
  • If the client has estate planning documents in place, ask them what their plan entails. If the client’s estate plan includes a trust, this conversation is the perfect opportunity to do your part in making sure things are titled correctly. What accounts or property were the terms of the trust meant to control? Has the ownership of those items been changed or beneficiary designation updated to reflect the client’s wishes? If accounts or beneficiary designations need to be changed, this could be accomplished during your meeting with the client.

Let’s Work Together

We are here to assist you and your clients with the trust funding process. By working together, we can craft and fund an estate plan that will protect your clients now and their loved ones in the future. We are available to meet with you, via telephone call or video conference if you prefer, to discuss the specific steps you can take to help your clients fund their trust or answer any questions you may have. Please give us a call so we can discuss the best ways to collaborate in serving our clients.

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