Don’t Forget: Fund The Trust

Establishing a living trust is a very smart way to accomplish multiple goals. Designating assets for our own needs in the event of decline. Earmarking funds for loved ones. Naming a trustee we can count on to administer the trust according to the plans detailed in the trust agreement. Leaving affairs organized and curtailing the strain on family members when we die. All this and more is possible with a carefully arranged trust. However, it’s important to avoid common mistakes related to actually funding the trust. Read on for guidance from attorneys. 

Assigning Assets To A Trust

Trusts can only do the jobs that they are set up to do if they own the related assets. In other words, until you specifically retitle and assign each asset you want in the trust to the trust, you’re not done with the work of establishing the trust. Unfortunately, the

Law Offices of Eric A. Rudolph find that failing to transfer assets to the trust is a very common mistake, which can create a great deal of difficulties for families:

One of the main goals of estate planning is to make things easier for the people you care about. When assets are missing from the trust, family members may be forced to:

• Locate account records and deeds
• Petition the court for authority
• Work with attorneys to address gaps
• Navigate probate during an already emotional time

Failing to fund a trust does not just create issues after death, it can also cause problems during incapacity. If assets are not titled in the trust and you become unable to manage your affairs, your successor trustee may lack authority to act. This can lead to delays, financial disruption, or even court-ordered conservatorship.

Avoid the problems created from failure to retitle and assign assets intended for the trust by carefully inventorying your assets and officially assigning ownership of those assets intended for the trust to the trust. Keep in mind that although your attorney can help you set up a “pour-over will” to accompany your trust, essentially folding assets left out of the trust into it at the time of death, those assets will most likely need to go through the public process of probate, which can create complications and delays for your family. Attorneys share these three reminders related to properly fund your living trust so that it serves its ultimate purposes well: 

1. Ensure your trust is fully funded and reviewed periodically. This includes:

• Retitling real estate and financial accounts
• Assigning appropriate personal property
• Reviewing beneficiary designations
• Updating the trust when assets or life circumstances change

2. 2. Estate planning is not a one-time task. It is an ongoing process that evolves as your life does….Some assets are more commonly overlooked than others, including:

• Newly purchased real estate
• Bank or brokerage accounts opened after the trust was created
• Business interests
• Personal property not covered by an assignment
• Out-of-state real estate

3. Regular reviews help ensure that new assets are properly coordinated with your plan.

Good To Know: Assets Not To Put In A Trust

Despite their many advantages, however, there are some assets which are best to avoid placing in revocable trusts. For example, experts at Moneywise recommend not putting these types of assets in revocable trusts:

• Vehicles. Whether it’s a ’63 Corvette, Harley chopper or prop plane, all that’s required to pass it on is a simple written instruction to transfer the title to a beneficiary. In a trust, you’re exposed to lawsuits over accidents that involved the vehicle.
• Annuities and retirement accounts. A trust can turn non-taxed accounts into taxable ones. But you can ​make the trust itself the beneficiary so that these accounts pass directly to your trustees without some IRS agent crashing the wake.
• Life insurance. Simply name your beneficiaries within the policy. Or, create an irrevocable life insurance trust (ILIT) to avoid estate taxes.

Experts also urge caution regarding assets held in other countries: guidance from attorneys licensed to practice in the country where international assets are located is strongly recommended. Be thoughtful too about placing checking and savings accounts in a trust: “If you use these to pay monthly bills, you may run into financial complications unless you’re the trustee and granted full control of trust assets.” 

Understanding The Trustee Role and Trustee Bonds

When trusts are established, trustees are named to administer the assets in them, based on the arrangements specified in the trust agreement. Trustees have fiduciary obligations and are held to exceptionally high legal standards,“the most important of which are the duties of loyalty and care, and the duty to act in accordance with the terms of the trust agreement.”  Given the seriousness of the role, trustee bonds are often required. Essentially, a trustee bond is a specific type of fiduciary bond that protects the interests of the trust and its beneficiaries in accordance with applicable state law. As a leading national provider of many types of fiduciary bonds, Colonial Surety Company makes it easy and efficient to obtain trustee bonds: Just get a quote online, fill out the information, and enter a payment method. Then, simply print or e-file the bond from anywhere. 

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