Personal & Financial Strategies

Funding Revocable Living Trusts

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Deciding who gets your property when you die is an important step in your estate planning process. Tammy Koester Parks and Ray C. Schenk explain how revocable living trusts offer one option.

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A revocable living trust is an estate planning tool that is used to determine who will get your property when you die. They are “revocable” because you can change them as your circumstances change. They are “living” because you can make them during your lifetime. Once established, a revocable trust can only control assets that you have properly titled into it.

Here are a few things to consider when establishing and funding a revocable living trust:

• Failing to fund a revocable living trust will render the most detailed, or sophisticated documents ineffective. Funding a living trust is the process of transferring your assets from you to your trust. This process is typically completed by changing titles and/or beneficiary designations from your individual name (or perhaps joint names if you are married) to the name of your trust.

• Funding mistakes can often adversely impact estate planning goals. Unfortunately, many people do not finish the funding process, which results in some assets going through probate. The probate process is necessary to validate a will and is often time-consuming, invasive in terms of making your will public, and expensive. Assets that are not funded into your trust could be subject to probate and related expenses.

• Many attorneys will prepare a “pour-over will” to serve as a safety net to catch any assets that may be overlooked or fail to become retitled into your trust. However, proactively funding your trust is the best way to ensure your wishes are carried out while avoiding probate. Although your attorney may assist or offer general guidance, it is ultimately your responsibility to ensure your trust is properly funded.

• Another common mistake is that people may assume that a colorful binder of estate planning documents, which they intend to be instructive in detailing their wishes, often overlooks qualified and individual retirement accounts, life insurance, annuities, and other assets with beneficiary designations. Only upon closer inspection do they find that many of these types of assets will be distributed outright and not through their trust. Periodic review of beneficiary designations for all retirement plans, annuities, life insurance, and similar assets is recommended to help ensure nothing is overlooked. Your beneficiaries might not be able to take advantage of estate and income tax strategies or asset protection if you fail to update the beneficiary designations for your life insurance and retirement accounts to coincide with the terms of your trust.

• Finally, be sure to review your plan and confirm that it is coordinated with all your assets so that you know what is funding your trust and what is going to be distributed outside of it. We believe this is the most important exercise in the planning process.

Tammy Koester Parks, J.D., is President of SVA Trust Company. Ray C. Schenk, CFP®, CTFA, ChFC®, CLU®, is Wealth Manager with SVA Wealth Management and Trust Officer with SVA Trust Company.

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