LLG Blog

Wednesday, September 19, 2018

Estate Planning Pitfall....You Have Not Properly Funded Your Revocable Trust........

Estate Planning Pitfall.......

You Have Not Properly Funded Your Revocable Trust.......

A revocable living trust is often used to complement a will. For instance, you might transfer specific securities to the trust. Notably, these assets generally don’t have to go through the probate process, which can be timely and expensive in some states. They’re also generally protected from creditors and may be managed by professionals.

Thus, a living trust enables your beneficiaries to receive some your wealth upon your death, with no complications. However, it won’t do anybody any good if the trust isn’t properly funded.

Funding the trust is simply the process of transferring assets to it. Essentially, you must change legal ownership of your assets from your name into the trust’s name. This also means you’ll have to change most beneficiary designations.

If you don’t properly transfer assets to the trust, you won’t accomplish your objectives, such as avoiding probate. In that case, the disposition of the assets is governed by your will. For that reason, you might add a “pour-over” provision to your will, directing any leftovers to the trust.

What should you transfer? Some typical examples include bank accounts, securities, real estate and business interests. Generally, you can transfer these assets with little difficulty, although real estate may require some additional footwork. Rely on your attorney for assistance.

It’s often recommended that you transfer ownership of life insurance policies and annuities to the trust. Alternatively, you might change the beneficiary designations. Be aware that any insurance policies and annuities you still own within three years of death are included in your taxable estate.

Finally, avoid transferring IRA and 401(k) plan or other retirement plan benefits to a revocable trust. This can trigger unwanted tax consequences.

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