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Funding Pitfalls

Many hazards plague the trust funding process.  Clients who attempt to fund their trusts without professional guidance or legal expertise run the risk of committing costly harm and, unfortunately, sometimes irreparable damage.  Clients should carefully avoid hazardous pitfalls while finding alternative strategies to accomplish trust funding consistent with their goals.   An estate planning attorney with experience in trust funding can guide you successfully through the trust funding process and ensure that you estate plan works as designed.

Some of the most dangerous trust funding pitfalls include the following:

• Using a Quit Claim Deed to fund real property to a trust.
  Consequence: This strategy may void your title insurance policy on the parcel being funded.

• Changing ownership on any qualified retirement plans [e.g. IRAs, 401(k)s, 403(b)s etc.] to a Living Trust. 
  Consequence: The IRS will consider this transfer to be a total and complete withdrawal of your retirement plan, resulting in the entire plan amount being treated as taxable income. 

• Not adding your trust as an "additional insured" to your property and casualty insurance policy. 
  Consequence: This omission may cause your insurance not to be effective for the property it insures.

• Funding real property without securing "a waiver" so that the lien holder does not accelerate your "due on sale clause." 
  Consequence: Not obtaining the appropriate waiver may cause your total mortgage or loan balance to be due in full immediately
  

And many other pitfalls...

Fortunately, you can fund your living trust while avoiding these hazards.  Many clients trying to fund on their own are often unaware of the risks and successful alternatives.  Generally speaking, leaving assets outside the trust is not a recommended approach.  Assets left outside the trust may be subject to probate and other substantial legal costs.  Not funding your trust is an unwise solution!  

We strongly encourage all Living Trust clients to pursue experienced legal counsel in the area of trust funding.  We are pleased to offer our Attorney Directory to identify legal counselors committed to providing their clients with high quality trust funding services.  For information about trust funding attorneys in your area, please click on our Attorney Directory.