Once you have signed your estate planning documents you may think you are finished. It is not the last step in the process. The next and most important step is to fund your trust and change your beneficiary designations so the plan will accomplish what you want. You fund your trust by changing asset titles so that they are held in the name of the trustee. If you skip funding your trust, the trust is essentially worthless, and you have wasted money. Your assets may go through the court probate process.
A trust is a document you sign whereby you, as grantor, name a trustee to manage your assets after your death or while you are incapacitated. You are usually the initial trustee of your trust. After you die or become incapacitated, your trustee manages and distributes your assets to the people or beneficiaries you have named in the trust.
You probably have 2 important goals when doing a revocable living trust. The first is to pass property to your beneficiaries according to the trust agreement without going through probate. Second, if you become disabled, your trustee can manage assets. If you do not change the asset titles you may wind up in guardianship court, which is an expensive and cumbersome procedure.
As an example, suppose you (John Smith in this example) have $101,000 in securities in your name. You would need to go to your stockbroker and change the title to John Smith, Trustee under Trust Agreement dated (date signed).
If you have retirement plans or life insurance, they are governed by the beneficiary designation, which is provided by the retirement plan custodian or life insurance company. You would normally want to name your spouse and then your children as beneficiaries. However, if you have minor children the process is more complicated. Children under 18 are too young to hold property in their own name and even at age 18 may be too young to handle it responsibly. You should consult your lawyer for help.
You do not normally want to name your trust as beneficiary of your IRA or life insurance. It is important, however that you consult with your estate planning attorney before naming your trust as a beneficiary of your retirement plan as there may be expensive income tax consequences if you name your trust.
Funding your trust is as important as signing your trust. Once that vital step has been accomplished you can have peace of mind that your assets will go to your loved ones without your beneficiaries having to go through a timely and costly process of probate, or worse, your assets being distributed to people you have not named in your trust.
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