No one plans to fail, but plenty of people fail to plan!
Inaction leads to failing in your estate planning goals. Ultimately, the number one failure of an estate plan is that assets are not properly funded in the name of the trust. Then when the decedent’s assets are examined, the successor trustee realizes the particular asset is not titled in the name of the trust, but is still held in the decedent’s name. This means that a particular asset will be subject to the decedent’s will – if there is one. This event is a common occurrence, and a costly one for the family.
Most estate planning lawyers will have a will, referred to as a “pour-over will” as a backup to the trust and to provide for the distribution of assets that do not generally go into a trust. If there is no will in place, assets that are not in the trust will most likely be distributed through intestate succession.
Additional problems stem from the asset not being titled in the name of the trust, such as, if there are not enough assets in the trust to fulfill its intended purpose and to meet the needs of the beneficiary class, it would be considered underfunded, even if all available assets have been properly transferred to the trust.
I have thought a long time about why the Probate Courts are full of cases where a trust does exist but the asset(s) in question were not titled to the trust, and I came to realize, the majority of instances resulted from the client not understanding the meaning of funding the trust – they didn’t plan to fail, in fact they created a plan. They simply failed on the follow through.
What Does it Mean to Transfer Your Assets?
Writing a trust is only half the battle. Once the trust is written, all designated assets of the grantor or settlor of the trust must be re-titled into the name of the trust. To take a simple example, if you write a trust for the benefit of your children and want your house to be distributed to them upon your death, you must change the title of the house so that the trust is, in effect, the owner. Thus, in California, proper trust funding in this hypothetical situation would include executing, notarizing, and recording a new grant deed in the name of “the Trust” with the county recorder where the property is located. The owner grants the property to the trust, and this is reflected in their respective titles – grantor and grantee. This would hold true for most real property assets that you intend to be part of the trust.
An attorney is not strictly necessary, but is strongly recommended because failure to perform this task could result in the property not being legally recognized as part of the trust. A mistake, for example, could occur because the legal description in the new deed should generally be taken exactly from the existing deed. When this failure occurs, litigation or other negative consequences, particularly probate proceedings, are often necessary. Keep in mind that one of the trust’s principle benefits is to avoid the entire probate process. and funding and executing the trust must be done correctly to avoid probate. Too often, a grantor will make the mistake of thinking that executing the trust with a schedule of assets is enough to make their estate plan work.
What Should I Transfer to My Trust?
This question is easy to answer once the purpose of the trust is clarified and memorialized. Different households and individuals have different goals, and that must be considered. The trust document and its structure will dictate the assets that can be transferred to the trust. Some assets may have tax implications that need to be analyzed. Most estate plans have a similar purpose, and the assets that will be moved when trust funding takes place will usually include the following:
- real estate holdings (e.g., house, business, investment property)
- personal property (e.g., jewelry, artwork, collectibles)
- bank and investment accounts (checking, savings, money market, equities, bonds)
- business interests (whole or partial ownerships)
- life insurance policies
- intellectual property
Essentially, anything of significant economic or personal value should be transferred. These assets will be used to ensure that your trust is properly funded and will meet the needs of the beneficiaries as you have intended. As you acquire new assets, they should also be moved into a trust – often right at the time of acquisition. If you have any doubts about what to include, it is a perfect thing to ask your attorney.
Who Should I Include in My Trust?
The answer to this question comes down to the individual preferences. It depends on how many beneficiaries you would like to see covered by your estate plan. Most people include their spouse and children as beneficiaries. Similarly, most people that have grandchildren also include them in some fashion, and future generations too. Siblings, parents, and other family members are also commonly included in trust and estate planning. In modern times, “blended” families are increasingly the norm, and there are ways to acknowledge new relationships and distributions that might follow. Charitable giving is often discussed.
Another important decision alongside who the beneficiaries are will be who should be listed as trustee to execute the trust. This person needs to be trustworthy and competent. He or she will have to make sure that the trust is compliant with the law and execute the commands of the trust. Additionally, the trustee will have to communicate effectively with all prospective beneficiaries and stakeholders when it is time to marshal the assets. Generally, multiple successor trustees should be considered and listed, if possible, in case the initial trustee becomes unavailable.
Make Sure Your Trust is Properly Funded with Your Attorney’s Help
After the key decisions are made regarding the goals of the trust, who it will benefit, and who the trustee will be, the trust is written and executed before a notary public. This is when the funding now takes place. Generally, this is simple, yet detail-laden work, and estate planning attorneys specialize in this work. The devil is in the details and our professional staff is enthusiastic about being error-free and efficient in this type of work. Experience matters, and it should be handled by someone who knows the local government and financial institutions when possible.