You Established a Trust! But Did You Properly Fund It?

Many years ago, I was meeting with some new clients: a married couple in their 50’s with several million dollars in assets. They’d provided copies of their brokerage account statements for two IRAs and a joint account for me to review. I asked if they’d done any estate planning and they enthusiastically answered, “Yes!”, clearly very happy to have this task off their to-do list. After further questioning, I learned that they had indeed established a revocable living trust but the trust document had been merely stored at home in their locked filing cabinet. When I pointed out that their joint account should have been re-titled in the name of their trust, their faces fell. They had no idea that there was more work for them to do after establishing the trust beyond filing it in a safe place. The good news in this story is that they were both still alive and healthy and I could help them with completing this very important task. 

Unfortunately, this scenario is all too common and these were not the only clients in my nearly twenty years at Sand Hill to have made some basic estate planning mistakes like this one. Once a trust is created, it must be fully funded to be effective. That means all assets that should be in the trust must be re-titled from individual or joint name into the name of the new trust. Some of the most common assets that should be considered for inclusion in your revocable living trust are below:

  • All bank accounts
  • All brokerage accounts
  • All limited partnership investments
  • All private company investments
  • All real property: your primary residence and any vacation or rental homes
  • All your cars
  • The entire contents of your home
  • All collectibles, artwork and jewelry
  • All patents, royalties and trademarks
  • Homeowner’s insurance policies should list the trust as a named insured

Admittedly, this task can be tedious and it requires patience for sure, but it is extremely important. And yet, before you set out to put everything in the name of your trust – including IRAs, life insurance policies and separate property assets – be sure to consult with your attorney. These and other assets might be better left outside of your revocable living trust since including them can create some unintended estate planning and taxation consequences. Your attorney can help to ensure that ownership and beneficiaries are designated appropriately.

Still, if, despite your best efforts and for whatever reason, your trust isn’t fully funded at your death, all your good estate planning work is not necessarily lost. Your attorney can still petition the court to get assets into the trust if there is proof that this was your intention. Indeed, you may have seen in the news recently that the trustee of celebrity Carrie Fisher’s estate was petitioning the court for this very reason.  But as you can imagine, petitioning the court for anything is an extra step which costs time and money.  It can also be a burden for the successor trustee who may be a grieving surviving spouse or child who was not a participant in the original drafting of the trust.

Even if you are certain that your trust was properly funded right after it was created, it is simply a best practice to review it periodically. Time passes often more quickly than you realize, and circumstances — and your balance sheet of assets — can change. Given the important nature of the exercise, it shouldn’t linger on your to-do list for too long.

This information has been developed internally and/or obtained from sources that Sand Hill Global Advisors, LLC (“SHGA”), believes to be reliable; however, SHGA does not guarantee the accuracy, adequacy or completeness of such information nor do we guarantee the appropriateness of any investment approach or security referred to for any particular investor. This material is provided for informational purposes only and is not advice or a recommendation for the purchase or sale of any security. This information reflects subjective judgments and assumptions, and unexpected events may occur. Therefore, there can be no assurance that developments will transpire as forecasted. This material reflects the opinion of SHGA on the date made and is subject to change at any time without notice. SHGA has no obligation to update this material. We do not suggest that any strategy described herein is applicable to every client of or portfolio managed by SHGA. In preparing this material, SHGA has not taken into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, you should consider, with or without the assistance of a professional advisor, whether the information provided in this material is appropriate in light of your particular investment needs, objectives and financial circumstances. Transactions in securities give rise to substantial risk and are not suitable for all investors. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.