While we’ve gotten to the point that you can buy Halloween candy in August, we will keep our tradition of featuring our Scary Financial Mistakes series during October. Accordingly, enjoy a weekly blog through Halloween from our team helping you navigate common scary financial mistakes.
The first fright lurking in this year’s series is failing to fund your revocable trust. Trust planning has become one of the most common estate planning techniques. And while the average American has no formal estate planning in place,[1] those with trusts have taken a significant step in achieving their legacy goals. Recall a trust created during your lifetime (usually called a “living,” “grantor” or “revocable” trust) is typically designed as a probate avoidance technique. These trusts also lay out your legacy planning for how you want assets to pass to your beneficiaries after your death.
While trusts have all these great planning advantages, one key step is often missed, funding the trust. Many believe once you have a trust your planning is done, which is a big (and common) mistake. Creating the trust is an important step, but leaving it unfunded can turn a carefully prepared estate plan into a ghost of what it was intended to be. You must change the title of your assets from your individual name to the name of your revocable trust for your trust to control those assets. This change in title generally has no effect on you, your tax liabilities or your exposure to creditors. However, by changing title of assets to your trust, when you pass away the terms of the trust control where the assets pass, not the probate process. For example, a typical title change for your Benjamin F. Edwards brokerage account would change from “John P. Client” to “John P. Client, trustee of the John P. Client Trust.” While this step seems nominal, it is actually gigantic.
If you fail to title your assets into your trust, the next most common way to fund your trust is through the probate process. While almost every trust comes with a companion will that “pours assets” into your trust, a primary point of trust planning is to avoid this probate process.
How can you keep this mistake from haunting your estate plan? Some practical advice is to book a day’s worth of estate planning the day you sign your estate planning documents. Set appointments with your financial advisor. At Benjamin F. Edwards, retitling your assets into your trust easily can be done by completing a form. Consider a trip to the bank and other institutions as well that day. Collaborate with your attorney on which assets you should retitle, but generally most individually titled assets are likely to move to your trust.
Estate planning can be difficult, both mentally and practically. But if you’ve gone far enough to create a trust, don’t leave the job unfinished. While probate court isn’t meant to frighten, it is typically slow, public and expensive. Avoid this scary mistake by funding your trust.
[1] www.justvanilla.com/blog/estate-planning-statistics-and-facts-you-need-to-know
IMPORTANT DISCLOSURES: The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.
5972403 – EXP: 09/30/2029