How Your Estate Planning Attorney Benefits from Helping Clients Fund Their Trusts
- Your attorney will likely discover assets not yet under management that the client can consolidate – prior employer 401ks scattered IRAs or investment accounts, or individual stocks or savings bonds that can be cashed in and invested.
- Your attorney can likely help you find product opportunities – life insurance needs (new policies, 1035 exchanges); annuities that can be cashed in or converted; large cash balances in bank accounts that can be invested with your firm.
- You will gain peace of mind because your estate plan will work.
- You will value the hands-on, professional approach to the process.
- Your children or other beneficiaries will appreciate the smooth transition of ownership after their loved one’s death and be inclined to leave the assets with you.
So What Does it Mean to “Fund a Trust”?
Funding a trust is simply the process of transferring assets from your name into the name of your trust. Most beneficiary designations are changed to the trust as well.
What Happens to Assets Left Out of a Trust?
If an asset in your name is not funded, probate is guaranteed.
Which Assets Should, and Should Not, Be Funded Into a Trust?
In general, you will probably want to fund the following assets into your trust:
- Real estate – homes, rental properties, vacant land and timeshares
- Bank and credit union accounts – checking, savings, CDs
- Safe deposit boxes
- Investment accounts – brokerage, agency, custody
- Notes payable to the client
- Life insurance – if the client doesn’t have an irrevocable life insurance trust; also confirm that the revocable trust is a protected owner under applicable state creditor laws
- Business interests
- Intellectual property
- Oil and gas interests
- Personal effects – artwork, jewelry, collectibles, antiques
Moreover, you will probably not want to fund the following assets into their trust:
- IRAs and other tax-deferred retirement accounts – only the beneficiary should be changed
- Incentive stock options and Section 1244 stock
- Interests in professional corporations
- Foreign assets – in some countries funding an asset into a U.S.-based trust causes adverse tax consequences, while in other countries trusts aren’t recognized or are ignored due to forced heirship laws
- UTMA and UGMA accounts – the minor is the owner, not the custodian, so the client should name a successor custodian
- Cars, trucks boats, motorcycles, and scooters – most states allow a small number of assets, including vehicles, to pass outside of probate, in others, a beneficiary can be designated for vehicles, and in others, vehicles don’t have to go through probate at all
The Bottom Line on Trust Funding
For many people, avoiding probate is the main reason they set up a revocable living trust in the first place. Unfortunately many believe that once they sign their trust agreement, they’re done. They’re not. If they fail to fund, probate is guaranteed.