Transferring your legacy
Don’t overlook your trust funding
If you have updated your estate plan during the COVID crisis and even found a way to sign your documents while maintaining social distance, do not overlook the last step of trust funding.
Trust funding is a critical step in estate planning that many people either overlook or put on the back burner and never attend to. If properly done, trust funding will avoid probate, provide for you in the event of your incapacity, and save on estate taxes.
Avoid probate and headaches for your estate. If you have created a revocable trust, you have control over the trust and can amend or change it during your lifetime. Because you have control over the trust, you can fund it while you are alive. Think of the trust like an empty box. You can fill it up now, or on your death. If you transfer assets to the trust now, the executor of your will does not need to do that on your death. The trust is already funded.
If you do not transfer assets to the trust during your lifetime, then your will has to be probated and an executor of your estate appointed. The executor will then have the authority to transfer the assets to your trust. This can take time and will involve court approval which can be slow and uncertain. You can avoid the need for court involvement by transferring assets to your trust now. This will save your loved ones time and aggravation after your passing.
Protect yourself and your family if you become incapacitated. Your revocable trust most likely provides for you and possibly your spouse and children during your lifetime. While you can manage your assets yourself while you are alive and in good health, who will manage the assets in your place if your health declines or if you are incapacitated? Funding the trust now will enable the successor trustee to manage the assets for you and your family in that instance. If a successor trustee does not have access to the assets to manage on your behalf, a conservator may need to be appointed by the court to oversee your assets. This can be costly and time consuming.
Don’t miss estate tax savings. If you are married, you may have created a trust that contains provisions for estate tax savings. These provisions will often defer estate taxes until the death of the second spouse by providing income to the surviving spouse and access to principal during her lifetime while the ultimate beneficiaries are your children.
Depending on what state you live in, the trust can also reduce state estate taxes. Massachusetts, for instance, has a $1 million exemption amount, which is lost if not used on the death of the first spouse. The trust provides a means to double the exemption amount between spouses while protecting the assets for your ultimate beneficiaries.
You will need to fund your trust to ensure that these estate tax provisions work properly. For instance, if your assets are held jointly with your spouse, they will not pass into your trust upon your death and will not be available to fund these important estate tax provisions.
Transfer the correct assets to your trust. Any asset transfer will need to be consistent with your estate plan. You should consider transferring taxable brokerage accounts, bank accounts and real estate to the trust. Beneficiary designations such as those on life insurance policies should be reviewed to see if the beneficiary can be updated to the trust. You may also want to consider transferring tangible items to the trust, as well as any closely held business interests such as stock in a family business or an interest in a limited liability company. Your attorney, financial advisor and insurance agent can assist you with making decisions about what assets to transfer to your trust.
You worked hard on updating your estate plan. Take the final step and fund your trust now to get the most out of your updated documents.
The contents in this article are being provided for educational and informational purposes only. The information and comments are not the views or opinions of Union Bank, its subsidiaries or affiliates.