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The Montana Estate Lawyer

Friday, December 15, 2017

Funding is vitally important in trust-based planning

One of the best tools estate planning attorneys can utilize for clients is the revocable living trust. The revocable trust has many benefits, such as incapacity planning, privacy, and probate avoidance. With regard to the latter, however, many people do not realize that setting up an estate plan with a revocable trust is not the final step to avoid probate in Montana.

Once the trust is established, the trustmaker or creator of the trust, must “fund” the revocable trust. Funding is the process of transferring assets from the trustmaker's name to the revocable trust. To do that, the trustmaker must physically change ownership of the asset or execute a new beneficiary designation for assets in which ownership has not transferred but the benefits of the assets will be directed to the trust in certain circumstances upon the death of the owner of the asset.

Many estate plans fail because funding is not done at all, is not completed or is done incorrectly. As a result, we offer full trust funding of our package for estate plans, as well as guidance for those clients who wish to do some or all of their own funding.

Trust funding is important because any assets in the probate estate at the time of death must pass via a judicial proceeding called a probate. This can lead to additional expenses and delay in settling the decedent's affairs.

Each type of asset requires a different procedure to effectively transfer ownership into the living trust. For example, a common asset to transfer into the trust is one's house, which is done by the execution of a new deed reflecting the name of the client’s trust. The deed is recorded in the county where the property is located. Bank accounts are transferred into a trust by providing the bank with a copy of a certificate of the trust and the client signing a new signature card as trustee of the trust. Retirement accounts cannot be owned by a trust because the transfer of ownership triggers tax consequences.  The proper way to deal with a retirement account Is with a beneficiary designation. If the living trust is created to deal with retirement accounts, the living trust can be the beneficiary of the retirement account and pass through to the trustmaker's beneficiaries.

If you have a trust that is not funded, please take care to complete the funding process.

Jon

 


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