Sometimes, messages need to be repeated to make sure they stick. Unfortunately, this often happens with ongoing maintenance with a revocable living trust to make sure that assets line up correctly with the overall estate plan, including the revocable living trust. Unfortunately, the “correctly” part of the reminder came in the form of a deceased client who did not follow our written recommendations and instead of naming his spouse as the primary beneficiary of his IRA and their joint revocable living trust as the contingent beneficiary named the trust as the primary beneficiary. This is causing his wife no end of troubles with financial institution because the mistake needs to be corrected in order to avoid paying hundreds of thousands of dollars to the government in the form of taxes.
That is why I am reposting this article to reinforce trust funding when clients make the choice to avoid probate with their estate plan.
Many of our estate planning clients have chosen to use a Revocable Living Trust as a way to avoid probate of their estate as much as possible when they pass on. Unfortunately, just having the documents set up is not enough to avoid probate. The process of “trust funding,” meaning retitling assets or changing beneficiaries to make sure they work in conjunction with the trust and overall plan, has to be an ongoing process. As assets change, the new assets have to also be titled properly and/or have the correct beneficiaries.
In order to make sure the trusts are and remain properly funded, our office takes several steps. In some cases, our clients are already working with experienced financial advisors trained in trust planning when we put together their legal documents, and those advisors are taking the lead in making sure those trusts are properly funded. In those cases, please contact your financial advisor about the status of your accounts. In those cases when there isn’t a financial advisor who has been specifically trained in trusts and therefore not taking the lead in trust funding (which is most of our cases), our office takes several steps to make sure that our clients know and understand proper trust funding on an ongoing basis so they can properly fund their own trust:
- Trust Funding Recommendations: As a standard part of our estate planning process for trust clients, our office requests a fully filled out Confidential Financial Analysis Form. (Sometimes when our clients are working with a financial advisor, they wish for their advisor to send us the relevant information, but sometimes the financial list only covers the assets that the financial advisor is controlling and investing; we need to have ALL of the assets listed.) We then conduct a specific, separate meeting with the clients to review that Analysis and make sure that there are no missing accounts, real estate, or other assets with a title or named beneficiary. After that meeting, our office prepares and mails a complete list of recommendations based on that Analysis and additional information provided in the meeting. This is the “homework” list that our clients use to complete the trust funding process on their own. The only assets that really REQUIRE an attorney to assist with are real estate deeds. Our office can handle deeds for property in North Carolina, but property outside of North Carolina requires an attorney in that particular state to create the deed.
- Trust Funding Services: Our office offers trust funding services, but it is not a standard part of our fees for setting up the trust and other estate planning documents. The reason why it is not a standard part of our work is because it takes considerably longer for our office to make changes to a client’s accounts because banks and other financial institutions do not want to work with us. Our clients are their clients, and they would prefer to deal with them directly. This means that the authorization process and actual paperwork takes about 5 to 6 times longer for us to do the paperwork than it would for our clients to do it themselves by working directly with their investment institutions and advisors. Because of this considerable time increase, our office currently offers these initial trust funding services at a price that nearly doubles the initial estate planning legal fees. Since our office supplies the trust funding recommendations, and we can always be engaged later to assist if needed, the vast majority of our clients decline to hire us for trust funding services. Because of this, our engagement agreements specifically state that our office is not responsible for funding the trust unless specifically engaged to do so, and we review that section of the agreement when our clients are first signing up for any kind of trust plan.
- Annual Meetings: It is highly recommended that our clients meet with us annually, or more often if needed. During this Annual Meeting, the majority of the time is usually spent reviewing the accounts and assets from the last Annual Meeting, or if it is the first meeting since the Funding Meeting, then the initial set of recommendations. We then review the assets, note any deletions and additions, and update the list of recommendations. In addition in this meeting, we review any potential changes in financial agents, health care agents, beneficiaries, or guardians for children as well as describing any relevant tax or estate law changes. Our office regularly calls our trust clients to schedule this annual meeting. Unfortunately, many of our clients decline to have this meeting until they actually want to make some large changes to their legal documents. Because of this, there may be 7 years or more between meetings with these clients, and they may have completely changed their assets during that time. If these clients don’t come in before there is a death or incapacity and their assets have completely changed, they may have very few assets that are set up to work properly with their trust. That means more than likely those assets will have to go through probate. This often comes as a shock to the families of our trust clients when we notify them that extensive probate will be needed when they were under the impression that “the trust was supposed to avoid probate.” Because of the importance of this meeting, we often offer a greatly discounted rate for our clients to hold this annual meeting.
Peace of Mind Plan: Another option that our clients can take advantage of is enrolling in our Peace of Mind Plan. For an additional annual amount, our clients can receive
- Unlimited scheduled phone consultations regarding Estate Planning, Probate, or Care Assistance Planning;
- 50% off estate planning updates to documents
- Annual asset and document review meeting;
- Any North Carolina quitclaim deeds related to your Trust drafted for free (with the applicable Register of Deeds filing fee per deed, currently $26, to be paid by client); and,
- Access to estate planning and related courses including the Trust Funding Series, live broadcasts several times a year, and access to a My Life Wishes account.
This program is probably the best way to ensure that the investment our clients have already made in a revocable trust plan will continue to be effective over the years. By having their annual meeting, changes and updates, and current trust funding recommendations included in their Peace of Mind Plan, it is much more likely that their plan will be current. (For more information on the Peace of Mind Plan, please contact our Client Services Director at 919-844-7993).
Unfortunately, despite all of our efforts, some of our clients do not follow up and reject our annual offers to meet. After a passing this can lead to some extremely unhappy trustees and beneficiaries when more than a minimal amount of assets has to go through probate. (Vehicles, some refund checks, and a few odds and ends are common, but if there is a properly funded trust then the large accounts, real estate, and other “big” assets are avoiding the probate process.) Our office wants to make sure that our clients’ plans remain as effective as possible over the years after the initial plan was set up, but we can only do so much. We can’t force our clients to meet with us.
For more information on the importance of trust funding as well as guidance through the most common situations, please check out the free webinar on Trust Funding at www.TrustFundingWebinar.com.
To stress the importance of ongoing work to make sure that trusts are fully funded, our office will be sending out this article as part of our newsletter every six months. If any of our clients wish to have an Annual Meeting, then we do encourage them to contact our office to schedule one so we can review these items in detail. If you have questions about whether or not an account is set up to work in conjunction with your revocable living trust, then we recommend your contact the financial professional working with that account. If you do not have a regular financial advisor, then please let us know and we would be happy to provide a recommendation. You can reach our office at 919-844-7993 with any questions you may have.