Funding assets is an essential step in the estate planning process. Unfortunately, this step is often overlooked. Many times, people spend a great deal of time, energy and money creating an estate plan. However, the plan does not work because their assets are not funded properly.
Funding is the process of titling assets in the manner necessary so the estate plan manages and administers those assets. Though each estate plan is different, generally, the funding process includes making ownership changes and setting beneficiary and transfer on death designations.
Wills, revocable trusts
For a will to work, assets need to be funded so they are part of your probate estate after your death. To be included in your probate estate, assets must be owned in your individual name without joint owners, payable on death beneficiaries, or transfer on death designations. After your death, your will is reviewed by a probate court, and your assets are managed and distributed by your personal representative or executor according to the terms of your will.
For a revocable trust, assets must be owned by your trust, so the trustee is able to manage and distribute these after your death. It is important to address the ownership and beneficiary designation of all your assets, including checking accounts, savings accounts, certificates of deposit, saving bonds, stocks, bonds, investment accounts, life insurance policies, business interests, real estate, promissory notes, mineral rights and personal property. Many assets will be owned by your revocable trust during your lifetime. However, there are some assets that should not be owned by the revocable trust, such as retirement accounts and incentive stock options. It is advisable to seek professional guidance to ensure that your assets are properly funded when using a revocable trust.
Of course, there are exceptions
In addition to using wills and revocable trusts, there are times when an estate plan will use joint ownership, beneficiary designations and transfer on death designations to fund the estate plan. It is important to coordinate the use of each of these properly to accomplish your estate planning goals.
For example, though retirement accounts should not be owned by your revocable trust during your lifetime, in some circumstances it may be advisable for the beneficiary of these accounts to be the revocable trust after your death. It is important to talk with an adviser to determine the best option for you.
Regardless of the type of plan you have, it is important to make sure your assets are funded into the plan so it will work. Please feel free to email your questions and comments to Miller Legal at [email protected].
Balzarini is an attorney at law with Miller Legal Strategic Planning Centers, P.A.