Trust Funding

It feels good to check things off your to do list.  Like those estate planning documents you’ve been meaning to do for a while?  You finally just signed them at the lawyer’s office and are feeling a nice sense of accomplishment.  That wasn’t fun but at least it’s done now…  Or so you thought. 

The truth is, if your estate plan includes a trust – a very common arrangement – then you actually aren’t done.  That’s because you are missing the final but very important step in having a trust – funding it.  If you don’t put any money into your trust, all you have is a very expensive piece of paper.  And no one likes paying for something they aren’t using!

But what exactly is funding a trust?  It means making sure your money goes into the trust, either now while you’re alive or later at your passing.  This can be done in a few different ways, like a beneficiary designation for your retirement account or life insurance, or outright ownership change for a brokerage account or real estate.  However you do it, nothing will end up in your trust unless you put it there.  Some people do nothing while alive and rely on their will to get their money into the trust when they pass.  But that doesn’t work for all assets, and even when it does work, it still subjects things to the time delay, expense, and hassle of probate.  And one big benefit of having a trust is for your heirs to avoid probate.

To get started, ask the lawyer that created your trust for their funding recommendations.  They’ll know best how your specific trust was meant to be used.  For example, some trusts are not meant to inherit retirement accounts and ignoring this could mean losing out on valuable tax benefits.  With the lawyer’s recommendations in hand, you can start updating your accounts. It may be a pain to do this now, but it should be a one-and-done task, and it’s still much easier than what would be involved for your kids or heirs to clean things up after you’re gone.  And while that hopefully doesn’t happen for a long time, they will thank you someday for planning ahead.

Disclosures

Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Rope Financial are separate entities.  

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