You Established a Trust! But Did You Properly Fund It?

You Established a Trust! But Did You Properly Fund It?

Many years ago, I was meeting with some new clients: a married couple in their 50’s with several million dollars in assets. They’d provided copies of their brokerage account statements for two IRAs and a joint account for me to review. I asked if they’d done any estate planning and they enthusiastically answered, “Yes!”, clearly very happy to have this task off their to-do list. After further questioning, I learned that they had indeed established a revocable living trust but the trust document had been merely stored at home in their locked filing cabinet. When I pointed out that their joint account should have been re-titled in the name of their trust, their faces fell. They had no idea that there was more work for them to do after establishing the trust beyond filing it in a safe place. The good news in this story is that they were both still alive and healthy and I could help them with completing this very important task.

Unfortunately, this scenario is all too common and these were not the only clients in my nearly twenty years at Sand Hill to have made some basic estate planning mistakes like this one. Once a trust is created, it must be fully funded to be effective. That means all assets that should be in the trust must be re-titled from individual or joint name into the name of the new trust. Some of the most common assets that should be considered for inclusion in your revocable living trust are below:

  • All bank accounts
  • All brokerage accounts
  • All limited partnership investments
  • All private company investments
  • All real property: your primary residence and any vacation or rental homes
  • All your cars
  • The entire contents of your home
  • All collectibles, artwork and jewelry
  • All patents, royalties and trademarks
  • Homeowner’s insurance policies should list the trust as a named insured

Admittedly, this task can be tedious and it requires patience for sure, but it is extremely important. And yet, before you set out to put everything in the name of your trust – including IRAs, life insurance policies and separate property assets – be sure to consult with your attorney. These and other assets might be better left outside of your revocable living trust since including them can create some unintended estate planning and taxation consequences. Your attorney can help to ensure that ownership and beneficiaries are designated appropriately.

Still, if, despite your best efforts and for whatever reason, your trust isn’t fully funded at your death, all your good estate planning work is not necessarily lost. Your attorney can still petition the court to get assets into the trust if there is proof that this was your intention. Indeed, you may have seen in the news recently that the trustee of celebrity Carrie Fisher’s estate was petitioning the court for this very reason.  But as you can imagine, petitioning the court for anything is an extra step which costs time and money.  It can also be a burden for the successor trustee who may be a grieving surviving spouse or child who was not a participant in the original drafting of the trust.

Even if you are certain that your trust was properly funded right after it was created, it is simply a best practice to review it periodically. Time passes often more quickly than you realize, and circumstances — and your balance sheet of assets — can change. Given the important nature of the exercise, it shouldn’t linger on your to-do list for too long.

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Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.


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