Funding Your Estate Plan: Ensuring Its Effectiveness
Dear Friends,
With income tax prep behind us, now is a great time to review your asset holdings and confirm that they align with your estate planning goals.
Funding Your Estate Plan: Ensuring Its Effectiveness
You’ve meticulously crafted your estate plan, but have you taken the crucial step of funding it according to the recommendations in your Asset Table? Proper funding is paramount to guarantee your plan functions as intended, particularly in avoiding probate. An inadequately funded trust will fail to deliver the anticipated tax savings and probate avoidance benefits. While your Pour-Over Will serves as a safety net to ensure your assets reach your chosen beneficiaries, it requires probate court involvement, which is something you hoped to avoid by establishing a trust in the first place.
Funding Options: Weighing the Pros and Cons
Generally, you have two avenues for funding your trust. The first involves transferring ownership of your assets to the trust during your lifetime. The second is designating your trust (or another beneficiary, as dictated by your plan) as the beneficiary of an asset or account. Your Asset Table, included in your binder, provides specific recommendations tailored to your situation.
Opting for Payable on Death (POD) beneficiary designation for your trust means the asset transfer occurs only upon your death (or the death of the last surviving owner in a joint account). This approach offers immediate convenience, as changing account beneficiaries is typically less cumbersome than altering ownership. However, it delays the ownership transfer until the administration period, when such tasks are unavoidable.
The drawback of the POD option lies in the fact that these assets remain outside the trust’s ownership during periods of disability. Consequently, your Disability Trustee cannot access them. While your Attorney-in-Fact under your Power of Attorney can access these assets during your disability, it is not always the easiest and most efficient way for them to assist. We advise you to have some assets, such as bank or brokerage accounts, owned by the trust to ensure there is liquidity for disability care and early administration costs.
The alternative – transferring asset ownership to your trust now – might require more upfront effort. Financial institutions often mandate closing existing accounts and opening new ones with new account numbers. This can be inconvenient if the existing account number is linked to numerous services, necessitating updates.
Despite the potential inconvenience, transferring ownership now ensures liquid assets are available for your Disability Trustee to manage your care during disability. This is particularly recommended for assets where changing the account number won’t cause significant disruption. Refer to your Asset Table for specific recommendations for each asset.
A frequently overlooked aspect of funding is designating a successor custodian for accounts like DAFs, 529s, and UTMAs. Failure to do so can lead to a probate court nightmare, as it may necessitate appointing a conservator to manage the account for minor beneficiaries. While these accounts typically bypass probate, probate can be triggered if no successor is named. Certain situations and institutions may require court-appointed conservatorship.
Key Takeaways:
- Fund your trust according to the recommendations in your Asset Table to maximize its benefits.
- POD beneficiary designation is convenient but delays ownership transfer and limits access during disability.
- Transferring asset ownership now ensures liquidity for disability care but may require more upfront effort.
- Don’t overlook designating successor custodians for accounts like DAFs, 529s, and UTMAs to avoid potential probate.
If your assets have changed significantly, either in character or in size, you should reach out to Christina to schedule a Legal Check-Up to review and get up-to-date guidance.
Best wishes,
Anna