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Introduction
to Trust Funding
If you have established a Living Trust, you are
probably aware of the many benefits that Living Trusts offer. On the
other hand, you may not be aware of how critically important it is to
accurately and completely "fund" your Living Trust for your
estate plan to work as designed.
If you are like most Living Trust clients you probably
have a few questions about trust funding:
What does it
mean to FUND a Living Trust?
"Funding" a Living Trust involves transferring the assets in
your estate from their current ownership and/or beneficiary designations to
the name of your Living Trust. To accomplish this goal, assets are
either re-titled to the name of the trust (i.e. the ownership changed) or,
in the case of some assets like retirement plans, life insurance, and annuities, the
beneficiary designations are changed to name the Living Trust as a
beneficiary. It may be
necessary to "assign" a specific type of asset to the trust
using a "Bill of Sale" or "General Assignment."
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What happens if my Living Trust
is not FUNDED?
Most clients who establish Living Trusts are interested in
avoiding the costly and public estate settlement process commonly known as
"probate." Depending on the area of the country,
probate can reduce the total value of an estate by 2% - 3%.
Assets not properly transferred to
the trust prior to death and, therefore, left outside the control and
protection of the trust may be subject to the public and costly probate
process. On the other hand, assets which have been properly transferred to
the Living Trust typically avoid probate. This
benefit can result in substantial savings to the client and their heirs in
addition to greater privacy about the administration of the estate beyond
the trustmaker's death.
Properly funding a Living Trust may benefit married couples
with potential estate tax liabilities. Trust
provisions designed to reduce the impact of estate taxes cannot be fully
implemented if the couple's Living Trusts are not funded.
Considering the high cost of estate or "death" taxes, not funding a Living Trust completely and accurately could result
in a pricey error to married couples.
In designing an estate plan, many individuals often
request that their Living Trusts contain provisions for bloodline
protection, divorce
protection, creditor protection, and remarriage protection.
These goals can only be achieved by trusts that are funded completely and
accurately. Assets left outside the trust may unintentionally
forfeit the valuable protections that their trust provisions provide in
these areas.
In addition to these protections, many individuals
include provisions in their Living Trusts to establish "continuity of
control" in the event that they lose the capacity to manage their
affairs. In a catastrophic event (illness or accident) which results
in the loss of capacity, a Living Trust can only control those assets
which have been properly funded to it.
Those who wish to avoid these problems are wise to ensure that their Living Trusts are
completely, and accurately funded and that the trust remains
funded throughout their lifetime. As you
acquire new assets, it will be critically important to ensure that these
assets become funded to you Living Trust(s) initially upon purchase or acquisition.
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How do I go about FUNDING my Living Trust?
Funding a Living Trust involves sending correspondence to the custodians of the assets (e.g. banks,
investment companies, stock transfer agents, insurance companies, etc.)
instructing the custodian to change either ownership or beneficiary
designation of the asset to the name of the Living Trust. This correspondence can take
the form of a simple Letter of Instruction. In some cases, the financial custodian may require
completion of institutional paperwork transferring ownership or changing
the beneficiary designation. It is not unusual for the custodian to
require notarization or a medallion signature guarantee.
Each asset
must be transferred on an individual basis with consideration given to the
legal requirements for "funding" various asset types. For
example, the process of funding a simple bank account is considerably
different from funding stocks, bonds, business interests, retirement
plans, even real
property. In fact, most assets require different funding procedures
specific to that asset type. It is wise to seek expert legal counsel
to ensure that the trust funding transfer process is accomplished in an
accurate and complete manner.
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Is FUNDING my Living Trust difficult?
Most estates are comprised of various types of
assets. These estate assets typically include bank accounts,
insurance policies, automobiles, investment accounts, retirement plans,
real property, even stocks, bonds, business interests, and
annuities. Funding each of these assets while adhering to various
legal guidelines can be a time-consuming and cumbersome
process. It is not unusual for clients who elect to fund their
Living Trusts on their own to become overwhelmed or frustrated with the
complexities of the trust funding process. Experience demonstrates
that clients who opt to "self fund" their Living Trusts often do
not complete the funding or commit unintentional errors which can
undermine the effectiveness of their estate plan.
Asset
types are funded to a Living Trust in different ways. How is one to
know the funding procedures that each asset requires? Most "lay
people" and even many attorneys lack the technical expertise to
distinguish between asset guidelines. The trust funding process is
complicated and contains many pitfalls which
should be avoided. We strongly recommend that clients who have
established Living Trusts seek competent legal counseling from an estate
planning attorney who provides high quality trust funding services.
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How do I find help and guidance in
FUNDING my Living Trust?
We recommend that all Living Trust clients seek
competent legal counseling from an estate planning attorney who is well
versed in trust funding. While most attorneys can
prepare estate planning documents, not all of these attorneys have specific
expertise in trust funding. An attorney who limits their practice
solely to the area of estate planning is more likely to provide these
critical trust funding services to their clients. Our
Find
An Attorney program helps to identify estate planning attorneys who have
established trust funding services for their clients.
Because trust funding is
cumbersome even for attorneys with expertise in estate planning, we have
developed trust funding products and services to help estate planning practitioners
better serve the needs of their clients. Our trust funding system, FundingPro™,
is designed for use by attorneys and helps to automate and organize the
trust funding process for their clients. Attorneys who participate
in our Find An Attorney
program
utilize our trust funding tools to provide the highest quality trust
funding services. We recommend you select an attorney that will not
only help to fund your trust today, but will also provide you
with lifetime funding support as your finances evolve.
Simply put, our mission is to ensure
that all Living Trust clients possess a trust that is funded accurately
and completely over the course of their lifetime. To learn more about estate planning
attorneys in your area who offer trust funding services, please refer to our
Find an Attorney program.
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