Once a trust is established (i.e. signed), it needs to be "funded" with your assets. How to do that depends on the asset itself.
Estate planning is really a two-step process. Step one is signing quality documents that reflect your wishes. Step two is making sure that all of your assets are set-up properly so that things go as planned when needed – Step Two is the most important step and the one you will work on throughout your lifetime.
Think of the Trust as a box that you need to put your assets into.
For a long time, the advice of lawyers was to let all of your assets pass to your "estate" upon death. In that event, a simple will could indicate the beneficiaries of the estate and name an executor. This sounds good but the problem is that the will needs to be probated and that is when the attorney makes a lot of money. The alternative is establishing a revocable living trust and putting your assets into that trust. Some assets can be directly titled to the trust. These assets include real estate, savings accounts, non-retirement investment accounts, cars and more. Other assets will simply have the trust named as a beneficiary. These assets include life insurance, retirement plans, checking accounts, health savings accounts, and more. This blog discusses how to properly fund your trust with each of your different asset types.
Real Estate
Real estate is a titled asset. In other words, we can go to the county records and determine who owns the particular piece of land. As a result, real estate should always be titled to some sort of legal entity (i.e. corporation, LLC, trust, etc.). It should never be titled to an individual, even a husband and wife. If you set up a revocable living trust, then usually the first asset that goes into it is your primary residence. We then need to talk about what to do with any additional real estate. By putting the house into a trust, you are essentially naming a beneficiary for it. This is exactly the same thing you did with your life insurance and retirement plan, so it makes perfect sense.
Life Insurance
Who gets the life insurance upon death? It depends on who is named as the beneficiary. Therefore, it is imperative that you always know who your beneficiary is. If you have a trust, then it usually makes sense to make the trust a beneficiary of the life insurance. If it is a couple, the spouse/partner usually is named as the primary beneficiary and then the trust can be the contingent beneficiary. If there is no spouse/partner, the trust can be the only (primary) beneficiary with no contingent beneficiary. To change insurance beneficiaries, please contact your insurance company. They will give you instruction on how to name the trust as a beneficiary. We of course are there to help in case any questions come up along the way.
Retirement Plans
Retirement plans is another asset that has a named beneficiary. The spouse/partner is usually named as the primary beneficiary. When it comes to the contingent beneficiary, that depends on the ages of your beneficiaries and the design of the trust. We have provided instructions for each.
Contingent beneficiary if kids are young
Contingent beneficiary if kids are adults
Contingent beneficiary if kids are young
If the kids are young or immature, then your AvoidProbate™ Trust contains language that holds their inheritance in a trust to be overseen by the trustee. We want to make sure that the retirement plan assets are directed to the trust in the event the spouse is not alive. In order to do this, we need to name the trust as the contingent beneficiary.
Contingent beneficiary if kids are adults
If the children/beneficiaries are all adults (or charities), then you can simply name those individuals/charities directly as the contingent beneficiary of your retirement plan. Again, the spouse/partner (if any) is the primary but then the individuals or charities can be named directly as contingent beneficiaries on the form. This will actually make it easier for them and may save on taxes.