Having a well-crafted plan in place is a vital component of ensuring your assets are distributed according to your wishes and your loved ones are protected. However, simply having an estate plan isn’t enough; it’s equally crucial to fund it properly.
What Is Estate Plan Funding?
Estate plan funding is the process of transferring assets into the legal structures you’ve established in your estate plan, such as trusts or designated beneficiaries. This funding ensures that your assets are governed by the terms of your plan, ultimately simplifying the distribution process and potentially reducing estate taxes.
Here are some key funding tips for funding your trust:
1. Create an Inventory of Your Assets
The first step in funding your estate plan is to compile a comprehensive inventory of your assets. This should include real estate, bank accounts, investment accounts, retirement accounts, life insurance policies, business interests, and any other assets of value.
2. Designate Beneficiaries
Many assets, such as retirement accounts and life insurance policies, allow you to name beneficiaries directly. Ensure that your beneficiary designations align with your estate planning goals. Regularly review and update these designations as life circumstances change.
3. Fund Your Trusts
If you’ve established trusts in your estate plan, they need to be funded properly to be effective. This involves transferring assets into the trust’s ownership. For example, you might transfer real estate titles, investment accounts, or personal property to the trust.
4. Coordinate With Your Attorney
Consult with your estate planning attorney to ensure that your funding strategies align with your overall estate planning goals. Your attorney can provide guidance on the specific requirements and legalities of funding trusts and other estate planning structures.
5. Consider Funding Options
Explore various methods of funding your estate plan, including:
Change the ownership of assets to align with your plan, such as retitling real estate or bank accounts in the name of your trust.
Assignment of Assets:
Assign specific assets to your trust, specifying their intended use and distribution.
Make annual gifts to your heirs or beneficiaries, which can help reduce the overall size of your estate and potential estate taxes.
Funding Life Insurance Trusts:
If you have life insurance, consider using an irrevocable life insurance trust (ILIT) to manage the policy and potential tax implications.
6. Regularly Review and Update
Life is ever-changing, and so are your assets. Periodically review your asset inventory and funding strategies, especially after significant life events like marriages, births, divorces, or the acquisition of new assets.
7. Educate Your Beneficiaries
Ensure that your beneficiaries are aware of your estate plan and how it affects them. Open and transparent communication can help avoid confusion and disputes later on.
Funding your estate plan is a critical step in ensuring that your wishes are carried out effectively and that your loved ones are provided for. By following these funding tips and collaborating with your estate planning attorney and financial advisor, you can maximize the benefits of your estate plan and have confidence that your assets are properly managed according to your design. Remember, proper funding is the key to a seamless and successful estate planning process.