The Necessity of Funding a Trust
An estate which includes an inter vivos trust is not helpful to you unless the trust is funded. An inter vivos trust is one which is established during a person's lifetime. This is in contrast to a trust which is established in a will at the time of death.
"Funding" a trust means that the title to property (especially real estate) is changed to the name of the trust. Also, beneficiary designations for other types of property is changed to the name of the trust. This includes life insurance, investment accounts, and bank accounts.
A Trust must be funded in order to avoid probate and avoid a court-supervised conservatorship.
This is particularly true of the popular revocable living trust.
An Unfunded Trust is Harmful to Your Estate Plan
One of the major mistakes in the estate planning process is the failure to fund a Trust. Estate administration fees and costs are likely to be higher because: (1) your estate may have to be probated; and (2) additional costs will be incurred to administer the trust after the probate transfers property to the Trust.
Further, an unfunded Trust does not help you avoid a court-supervised conservatorship if you become incapacitated such that someone else has to manage your assets for you. (A Colorado statutory power of attorney will help avoid a conservatorship, but it is not nearly as helpful as a funded Trust.)
Changing the title to Your Property to the Name of the Trust
Certain assets should be re-titled into the name of the Trust. This is especially trust of real estate titles and investment accounts such as stock brokerage accounts.
Changing the Beneficiary Designations to the Name of the Trust.
Beneficiary Designations of certain assets such as life insurance and bank accounts should be changed to the name of the Trust.
Tax-Deferred IRAs, annuities, and 401(k) Accounts Usually Do Not Go Through a Trust.
Tax-deferred assets such as IRAs, annuities, and 401(k) accounts usually do not go through a Trust. The reason is that the income tax will likely be higher if income tax is paid at the Trust level, instead of by an individual. However, some estate plans do properly include these assets in a Trust plan.
Beneficiary Designations Must be Coordinated With Estate Plan Even if No Trust
Beneficiary designations must be coordinated with your estate plan even if you do not have a trust. Otherwise, your Will has no effect on your property which bypasses your will. The failure to properly coordinate your beneficiary designations is one of the major mistakes in estate planning. For example, if a trust is established in your Will, that trust will not be funded if unless your beneficiary designations name your Estate as the beneficiary of your assets. This is particularly true of life insurance.
A Statement of Authority Should be Recorded in the County Real Estate Records
A Statement of Authority must be recorded in the county where real estate is located, and also in the county where you live. A Statement of Authority is necessary to show the existence of the Trust, the address of the Trust, and the identity of the Trustees.
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