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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 and sometimes irreparable
damage. Clients should carefully avoid hazardous pitfalls while finding
alternative strategies to accomplish the trust funding
process.
Some of the most dangerous pitfalls include the following:
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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.
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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.
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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.
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And many
other pitfalls...
Fortunately, a successful funding strategy exists where assets can still
be funded while avoiding these hazards.
As discussed above, 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. In most cases, 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 Find An
Attorney Program 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 Find
An Attorney page.
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