The Living Trust is the foundation of many clients’ estate plans, and rightfully so. There are numerous probate-avoidance, tax and property management reasons justifying the establishment of a Living Trust (by the way, please don’t get confused by the terminology… the names “Living Trust”, “Revocable Trust”, “Revocable Grantor Trust”, etc. are all references to the same popular estate planning tool). However, one of the most important aspects of a Living Trust that we stress with our clients is the necessity for proper “trust funding” after signing the document in order for the trust to operate in accordance with its design.
So, what do we mean by “trust funding”? Well, the trust funding component of a client’s estate plan involves a detailed analysis of that client’s particular asset holdings and the form of legal ownership by which they are held. The property management and distribution terms of a client’s trust will apply only to the assets actually owned by the trust. Some common examples of “trust funding” include but are not limited to the following:
• Transference of legal title to a bank, CD or brokerage account from the individual name of the client (John Doe) to “John Doe, as Trustee of the John Doe Living Trust dated 10/01/2011”
• When appropriate, the designation of “The Trustee in office of the John Doe Living Trust dated 10/01/2011” as beneficiary of a life insurance policy, annuity or “payable on death” bank or brokerage account
• As for real estate interests (when appropriate), a deed from John Doe transferring legal title to the property to “John Doe, as Trustee of the John Doe Living Trust dated 10/01/2011”
Please understand, however, that every case is unique. It is important to confer with your attorney to ascertain the trust funding actions that best suit your needs given your asset portfolio and overall estate planning objectives (often times, tax considerations come into play and warrant careful analysis). All clients having Living Trusts must carefully consider “trust funding” in order to effectively utilize their Trust and to allow it to operate as intended. We suggest that individuals and couples having Living Trusts periodically review their trusts and the assets comprising the same… if we can assist you, please don’t hesitate to ask.