Revocable trusts are an essential planning tool that can provide many benefits to the individual(s) who created the trust and to the beneficiaries of the trust as well. However, these benefits only apply if the revocable trust is funded. Many people make the mistake of establishing revocable trusts during their lifetime, but never actually fund them. This commonly overlooked step in planning can derail even the best drafted estate plan.
What is a Revocable Trust?
A revocable trust is a trust that can be altered, amended or revoked by the person who created it (also known as the Grantor) at any time during their life. Revocable trusts are a popular estate planning tool that let you:
- retain control over the trust property while you are alive,
- avoid guardianship in case you become incapacitated and can no longer handle your own financial affairs,
- pass trust property outside of probate when you die, and
- can provide essential spousal estate tax minimization planning.
But none of the benefits of a revocable trust come to fruition if the trust is not properly funded.
What Does it Mean to Fund a Trust?
Typically, funding a trust means transferring the ownership or beneficiary designations of certain assets into the name of the trust during your lifetime. These assets can include bank accounts, real estate, and taxable investment accounts. The exact manner in which this is done will depend on the type of asset. For example, to transfer real estate to a trust, you’d generally need to execute a new deed transferring the property to the trust. For bank accounts, you could change the name on the account to that of the trust or open a new account in the name of the trust. For taxable investment accounts, you’d typically complete paperwork with your brokerage firm to retitle the assets in the name of the trust.
Why is it Important to Fund a Trust?
Think of a revocable trust as a safe whose job it is to protect the items inside it. So, no matter how well built that safe is, it can’t protect what’s not inside it. Take the real-life example of pop star Michael Jackson. While he was living, he created a trust for the benefit of his children, family and friends, but he never actually funded it. So, when he passed, most of his assets were subject to probate court. From that probate process, over 10 years of public battles between family members, the IRS, and the executors of the estate ensued. If Michael Jackson had taken the necessary steps to make sure his trust was funded, his estate could have been privately administered and likely avoided the unnecessary costs and time spent dealing with probate court.
Creating a revocable trust is an important first step, but funding your trust is the key to ensuring your estate plan works seamlessly.
Don’t wait to protect what you’ve worked so hard for. From basic estate planning to complex advanced strategies, our experienced estate and financial planning specialists are here to help you create a plan that safeguards what matters most—your family, your future, and your peace of mind.
