Bite-Sized Bits of Knowledge

Welcome back to another dose of Bite-Sized Bits of Knowledge, where we give you meaningful information in a short amount of time. Today we’re going to talk about trust funding. It’s a common discussion point that we have. What does it mean and why should you care? 

So you’ve gone through the process of doing your estate planning. You probably have a trust that’s a part of that plan. Congratulations, you’ve accomplished a lot that most people don’t do. And even if you go no further, you’re saving yourself and your family a lot of heartache so you should be happy and congratulatory towards yourself. 

Now, let’s dig a little deeper here. So you have your trust and you’re probably wondering what to do with it now. It’s very common that everybody you know who has a trust says, you have to fund your trust right away. A lot of attorneys are going to push you to get your trust funded. Some will help, some won’t, but what does it mean to have your trust funded?

So if you go back to our probate videos you would learn that probate or trust, or I’m sorry, estate administration, really only is necessary if you have assets that remain in your name upon your death. They have to go somewhere, and that’s determined as you recall, from our ABCs of probate. Those assets have to go to someone and that’s determined by statute will, or trust, (typically statute or will). Then it goes to the trust, maybe. 

That’s important because if you don’t fund your trust now, and you forget, and you pass away, then those assets, if you have a trust, most likely you have a pour-over will, that says put everything in trust. Most likely, if you go to probate the will will say dump it into the trust, but that still requires going through what I affectionately call the postmortem toll booth of probate, and it’s unnecessary. It’s expensive, it’s time consuming, it’s a real pain in the butt, so trust funding would sound like that’s something you should do right away. 

You make your trust, you move things over to it, now what does that mean? That means that bank accounts, properties, businesses, life insurance, annuities, things can be moved into the name of the trust. Typically the name of the trust is the John Doe family trust, UAD, date of execution, the John Doe declaration of trust, UAD, date of execution, or the John Doe revocable trust UAD, date of execution. 

I don’t like the revocable trust in the name because it confuses everybody when you pass away, and it becomes irrevocable when it has revocable in the name, so we don’t do that. So you can fund the trust by retitling assets into its name, at the bank through a deed for real property, through necessary documents, if it’s a company through life insurance, beneficiary designations, if it’s life insurance. 

The question is not how to do it – that’s not that hard. The question is when to do it. We get a lot of people that ask us because they forget, or they talk to other people who said that they funded their trust, and then that makes them insecure. And they’re wondering why didn’t we do that, and so I thought that this video would be helpful to explain that it’s not all black and white when it comes to funding your trust. Again, if you don’t fund the trust, your downside is that you have a probate, which will move the assets to the trust through what I affectionately call the postmortem toll booth probate. 

And that’s not the worst thing in the world, it’s just a little time and money and pain in the butt. It could be avoided. It should be avoided. But at the same time, there’s a reason for taking the risk. The risk as I kind of describe it to people, is – well, let me back up. If you’re a single person, and you’re not married, I would say fund your trust immediately, okay? Typically I would say fund your trust immediately because there’s no real reason not to. Generally speaking, of course, everybody’s situation is different. Generally speaking, fund your trust if you’re single and not married, because there’s no reason not to. 

Now if you’re married, at least in Florida, Florida has a special form of ownership with a spouse. It’s called tenants by the entireties, and that form of ownership has a degree of asset protection. So when it comes down to funding your trust, I view it as kind of a balance, like a seesaw. On one hand, you have your asset protection, and on the other hand you have your probate avoidance, okay? And particularly, simultaneous death probate avoidance. You have your asset protection of owning it as husband and wife, or spouse and spouse, whatever it is. That’s a degree of protection that does not exist if you put it into trust. 

Nearly all trusts (of course with exceptions) are not helping you to protect assets in Florida. So by moving it to your trust now, you might be destroying that asset protection that you have, and so that’s why I said it comes down to simultaneous death, risk of probate, and asset protection. 

Now, why do I keep saying a simultaneous death? Because if you own it as husband and wife, or spouse and spouse, then upon the death of one of the spouses, it’s received, it’s inured, to the benefit of the surviving spouse automatically by operation of law. So it’s not going to go to probate on the death of the first spouse, it’s going to go to probate on death of the surviving spouse which by then you can move it to the trust. 

So the real risk as I see it is, the simultaneous death of both spouses going to probate, versus protecting your assets and keeping it owned that way until one of them passes away, then you can move it over to the trust. With other types of certain assets you can designate who goes to the trust upon death of the survivor anyway, so you should look at those. In my opinion, you should look at those typically rather than retitle them because that preserves the asset of protection and avoids the simultaneous death issue. 

So my bottom line here is that funding the trust is not a black and white thing. It’s different for everybody. I think that the main considerations are simultaneous death and avoiding probate versus asset protection during your life. 

And most people that we work with, asset protection is very important. So these are some considerations before knee-jerking into both funding the trust, and worrying about why you didn’t do it. 

I hope that you found this helpful. Thanks for stopping by and stay tuned for more.