We are sharing resources on trust funding because WE think it is the most important step in preparing a living trust based estate plan. But why do we think this? And why should you also think this?
This is how we talk with our clients and potential clients about trust funding:
- Why did you set up an estate plan in the first place? There has to be a reason and the reason has to be important enough that you would pick up the phone or keyboard and get in touch with an estate planning attorney. Then, it has to be important enough for you to decide to hire that attorney to help you put that plan in place. it is clearly important to you!
- What are some common reasons (not all) that are important to our clients (and in general) which cause them to put a living trust estate plan in place?
- They have kids under 18 years old (minor children).
- They want to make it easier on their family, their loved ones, their friends, who have to handle all the details, paperwork and steps after they pass away.
- They want to avoid probate (court supervised administration).
- They want it to be crystal clear what happens to their money, things and real estate when they die.
- Bottom line, if you do not finish the job and fund your trust, every reason that important to you and every thing you wanted to avoid happening COULD HAPPEN. Funding is the step that makes everything work.
GOLDEN RULE: IF IT ISN’T IN THE TRUST AT YOUR DEATH OR GOING TO YOUR TRUST AT DEATH, YOUR TRUST DOESN’T CONTROL WHAT HAPPENS TO IT.
So if it isn’t clear enough why we think that trust funding is the most important part of an estate planning process, here is a good example of what can happen if a trust isn’t fully funded. This is NOT one of our clients.
A husband and wife have a joint revocable living trust. They have their house, personal property and some of their investment accounts in the trust, but not their regular bank accounts. They just never got around to it because it takes a trip to the bank and they got busy. Then they forgot. Unfortunately, the wife became ill. After several months of treatment, the wife lost her battle with her illness and passed away. This is tough to think about. Especially if you are a wife. Especially if you are also a mother. The husband, after celebrating his wife’s life and honoring her wishes about cremation or burial at death (because they had an estate plan and knew what the other wanted), he starts looking at the accounts again. That is when he remembers that they have a trust and never got around to really finishing the things they needed to do. His wife handled a lot of the planning steps and “to do’s”.
Most of their bank accounts were jointly held and these aren’t an issue for him to access, but the wife had 2 accounts that she used for fun money and savings she accumulated. The husband knew about these accounts and never gave them a thought. She never kept them from him, and she used the money freely on what they needed for the family. He encouraged her to spend on herself, also. She was prone to spending it on something new for one of the kids. But now, he couldn’t get access to those accounts. The bank actually told him, when he went in there to tell them what happened, that he needed to bring them “letters”. What’s that?
If this happened to one of my clients, when I get that email or phone call, my heart would drop. This would tell me that they never went to the bank and never fully funded the trust. They never changed ownership of those accounts to the Trust OR they didn’t add a transfer on death designation on these bank accounts to go to the trust at his wife’s death. The bank is basically not going to let him know a thing about these accounts until he starts the probate process. Which is literally one of the reasons they wanted a Trust plan, no probate.
This is something that can happen. Maybe you have heard it happening to someone you know and love. This happens all the time, unfortunately. We work like the dickens to try to get our clients to go to the bank and finish the job so this isn’t one of our clients.
Funding your living trust is THE most important step in estate planning.