An unfunded trust will undermine your estate planning.
Your estate planning goals included avoiding probate.
You also desired to simplify asset management should you become incapacitated.
Consequently, your experienced estate planning attorney recommended a revocable living trust.
You agreed and happily signed the papers for the creation of your living trust.
According to a recent Point Verda Recorder article titled “Don’t forget to fund your revocable trust,” this action will do you little good if your trust remains unfunded.
Leaving your trust unfunded means your assets will be distributed through probate.
If this happens, certain assets may be inherited by unintended heirs.
What should you do?
Retitle assets in the name of your trust.
A trust is capable of holding a variety of assets.
You can transfer ownership of bank accounts, investment accounts, or real estate for starters.
Specific wording should be used to retitle bank and investment accounts.
Consult with your estate planning attorney for the appropriate terminology, otherwise your trust may remain unfunded.
In some instances, you may be able to change the name on an existing account.
Other institutions may require the creation of a new account and the transfer of funds.
Oftentimes, a financial institution will require a copy of either the entire trust or simply the first page of the trust, the signature page, and signatures of all the trustees.
You use your Social Security number for the trust “taxpayer identification number,” if you are a trustee or co-trustee.
If you are not a trustee, your trust will require a separate tax identification number and must file a separate 1041 tax return each year.
You will be taxed, and the trust will not owe an additional tax.
Should you want to include real estate in your trust, your estate planning attorney will provide directions on how do so properly.
Before using life insurance policies, annuities, or retirement accounts to fund an unfunded trust, discuss your goals and intentions with your estate planning attorney.
These may trigger unintended tax consequences.
Although a trust is a beneficial estate planning tool, it can be counterproductive if it remains unfunded or is funded improperly.
Reference: Point Verda Recorder (Nov. 19, 2020) “Don’t forget to fund your revocable trust”