Can you trust your trust?  It’s not a catchy line, but an important question.  Many times, families are sold on the need for a trust to solidify their estate planning wishes.  This is all true, as trusts are a valuable legal tool for various family dynamics and inheritance.  In fact, trusts drafted and funded properly should help avoid family disputes.

But it has to be done right.  That takes education.  A trust is at its best, and most useful, when (1) clients understand a trust’s actual terms; and (2) it is funded properly.  Let’s go through these two points in detail.

UNDERSTANDING THE TERMS OF YOUR TRUST

Let me guess: your lawyer gave you a thick binder of documents, you signed them, and it happened to include a trust because you saw that word on the cover page.  Do you know anything else about it?  Did you hear about someone else’s trust and figured yours must be the same?  Do you know if your existing trust is still right for you?  Or do you assume you don’t even need one because trusts are only for millionaires?

Each trust is different, with different terms based on a client’s (or grantor’s) wishes.  They can include, for example, (i) who is the trustee, including the successor; (ii) who gets which specific asset(s); (iii) how old they must be to get property; and (iv) many other unique terms such as tax rules and others. 

Then we get to specific categories of trusts.  There are trusts the grantor can control or change during their life, which we call a revocable trust.  There are also irrevocable trusts, which are extremely valuable in planning for certain government benefits such as SSI and Medicaid.  This latter category also includes special needs trusts for the disabled.

So if you hear about someone’s trust, don’t assume you have one like it.  And if you think you need a trust, don’t assume you know which is the right one.  An estate planning lawyer will point you in the right direction and draft it.

MAKING SURE YOUR TRUST IS FUNDED 

I finally got a trust, so I’m done, right?  Not yet!  Once your trust is created, you have to “fund” it.  By that we mean properly putting assets into the trust, or allowing the trust to be a beneficiary of future assets.  For example, moving bank or brokerage accounts into the name of a trust, or having the trust listed as a beneficiary on an account.  It also means deeding real estate into a trust, or drafting a special “lady bird” deed so that a trust gets property after someone passes away.  How do you know which makes more sense?  Again, every person’s circumstances are different, so trust funding takes different forms.  But funding it is a must.  Proper funding will also avoid probate court involvement.  A trust with no assets in it, or funded incorrectly, is of no benefit to you at all.

The bottom line, once you create the trust, that’s only the beginning.   Contacting financial institutions, checking deeds and filling out forms will be the next step.  This funding process requires an attorney who understands the moving parts involved.