Revocable Trusts and the Importance of Funding Them

Here at Wright & Associates, we pride ourselves in providing our clients with upstanding care and attention with regards to their estate planning needs. We strive to ensure that our clients’ wishes will be honored and that their assets will be protected for their loved ones for many years to come. A notable service we provide to clients seeking guidance in their estate planning is the establishment of “Trusts.”

Trusts come in many different forms, but ultimately share one primary objective: protecting our assets even after we have passed on. When prepared correctly, trusts alleviate you and your family of the struggles associated with the costly and time-consuming process known as “Probate.” Trusts may also help you and your family avoid the hardships associated with incapacity, otherwise known as “Conservatorships” or “Guardianships.” Trusts also allow you to provide for a spouse without running the risk of disinheriting your children, which often occurs in second marriages. Nevertheless, even when a trust is prepared correctly, many of their creators make this costly mistake that subjects their assets to the court process: they do not “fund” their trust.

What does it mean to “fund” a trust? Funding a trust is the process in which a person physically transfers property or assets directly into their trust. There are a variety of assets that may be transferred into your trust: real estate, bank accounts, life insurance policies, annuities, and so on. These assets require you to change the titles or beneficiary designations to “Your Trust.” Trust assets may also include personal property that is untitled, such as priceless family heirlooms that have been passed down for generations. These types of assets should be named and evidenced in the trust document through detailed lists known as “Schedules.” These schedules are highly beneficial in not only ascertaining which assets are in the trust, but also designates these assets as trust property from the moment the trust is executed.

The person in charge of controlling and funding a trust is known as the “Trustee” and must be specifically named in the trust document. Trusts may contain multiple trustees, or “Co-Trustees,” however, this article will focus mainly on Revocable Trusts with one individual trustee. If you are executing a Revocable Trust, you will most likely name yourself as its initial trustee. By naming yourself as trustee of “Your Trust,” you will have full control over the trust assets even though they are titled to “Your Trust.” One of the many benefits of naming yourself as the trustee is that it allows you to continually buy, sell, and remove assets at your discretion, just as you do every single day.

Although you maintain full control over the trust, the issue of funding the trust will quickly arise. If you have executed a trust document but do not change the titles or beneficiary designations to “Your Trust,” then these assets will not become property controlled by “Your Trust.” If these assets do not become part of the trust property, then these assets will become part of your “Estate” and must go through the probate process. If no assets have been transferred into “Your Trust,” the trust document will have no authority in dictating how the assets will be distributed until you file in Probate Court and have the Court transfer the assets to the “Your Trust,” which is an expensive and unnecessary cost. That means that even though you have executed a picture-perfect trust to protect your assets or distribute such assets to your heirs, the trust is deemed ineffective until it holds “title” to those assets.

At Wright & Associates, we have witnessed the dilemma of individuals not funding their trust firsthand. As a result, we have prepared time-saving remedies and solutions for clients that come to us for their estate planning needs. Included in our Trusts Packages, we provide a safety net for our clients that will ensure that any forgotten assets are “poured over” into their trust. This means that any asset that should have been funded into the trust, but was not properly transferred into the trust, will nonetheless be disbursed as though the asset was trust property. Although the asset will go through probate at first, this safety net ensures that our clients’ assets will be distributed in accordance with the terms of their trust.

A common misconception with funding a trust is that the attorney is responsible for doing so. Although an attorney will assist you in transferring some of your assets, specifically those involving real estate, YOU are ultimately responsible for making sure all of the assets you wish to include in the trust are transferred into “Your Trust.” At Wright & Associates, we review each asset with our clients and explain whether or not the asset should be included in the trust. If an asset should be included in the trust, we explain to our clients the procedures necessary to transfer the asset into their trust and even help them decide who will ultimately be responsible for transferring such asset. We provide a comprehensive “funding provision” in each trust document, which provides guidance to our clients on what they need to do to fund their trust. After our clients become familiar with this process, many can transfer assets into their trust without our assistance. This saves money on legal fees and provides them with the opportunity to put that money towards providing for loved ones, which is our utmost priority for clients.

Here at Wright & Associates, we believe that it is never too early to plan for your future. Our estate planning tools ensure that our clients and their families will be secure and provided for in the years to come. If you'd like more information, call us today to schedule a free consultation when you mention this blog post.