It’s in The Trust Paperwork, but Is It in The Trust?

Q:

After consulting with our estate planning attorney and financial planner, my spouse and I decided to create a revocable trust to make things easier for our kids when we pass. We gave our lawyer a list of our assets, including several financial accounts and our primary and vacation homes. Most are listed in the trust agreement. But our financial planner told us that this isn’t enough and there are more steps we need to take. Can you explain?

A:

This is an extremely common question that comes up during estate planning. Trust agreements are legal documents – once you’ve read one and your eyes start to glaze over, that will be crystal clear – so it’s easy to assume that including a list of assets must mean something, legally speaking.

Unfortunately, and somewhat surprisingly, it doesn’t. And understanding this detail is key in order for your estate plan to work.

A BIG MISCONCEPTION

Here’s the straight answer: Simply listing assets in your trust agreement does not make them legally part of the trust.

So why even include a list? The list can serve as a reminder to you that you need to get these items retitled, and to your fiduciary that these items should theoretically be part of the trust. But if you don’t take the steps necessary to actually move them into the trust, it’s just that: a reminder of something that should have been done but wasn’t.

Think of it like helping your teenagers pack for a vacation: Together, you work on a list of all the things they need to bring. But if they don’t actually pack, the suitcase will still be empty when you arrive.

WHAT DOES ‘RETITLING’ MEAN?

Retitling is the critical step that makes your trust work efficiently. It means changing legal ownership so the trust becomes the owner instead of you or your spouse. But don’t worry:  A revocable trust is simply your alter ego, and you (as the grantor, trustee and beneficiary) maintain full control of the assets titled in the name of your revocable trust.

For a bank or investment account, that means contacting your financial institution and updating the owner of the account (you’ll need the name of the trust).

For real estate, it means recording a new deed. (Because this involves more legal documents, your estate attorney should help you with it.)

As a side note, while you’re taking these steps, it’s a great time to double-check your beneficiary designations on things like retirement accounts and life insurance. Life insurance and retirement accounts should generally not be titled in the name of the trust, but your plans for them should be coordinated with the plan for everything that is going in the trust.

WHY THIS MATTERS

If assets aren’t titled in the name of the revocable trust, a probate proceeding will likely be necessary – a process that can be slow and expensive, and probably exactly what you were trying to avoid when you created the revocable trust. Worse, your wishes might not be carried out the way you intended.

Proper titling helps ensure that your estate plan runs smoothly and gives your family one less thing to worry about during a tough time.

Another side note: Your attorney likely also created a pour-over will in tandem with the trust agreement. This kind of will ensures that assets you missed titling in the name of your revocable trust during your life will eventually be transferred into the trust upon your death. But the will may still need to be probated for this to happen, so it’s just a backstop, not the ideal process.

NEXT STEPS

You’ll want to get moving on retitling your assets as soon as you can. Your estate plan isn’t complete until this step is done.

Remember to title future accounts and property in the name of the trust as well.

Your financial planner and our in-house experts are here to work with your estate planning attorney as you finalize and update your estate plan. Reach out whenever you need us.

WE HOPE YOU’VE FOUND THIS INFORMATION HELPFUL

Remember that any financial guidance must be adapted to your unique circumstances, so consult your financial advisor. In the meantime, keep those questions coming!