You could work with the world’s best estate planning attorney to create an effective plan that will accomplish all of your goals, but none of that will matter if your plan is not properly funded. In the end, only a properly-funded estate plan will be a successful estate plan.
We see many situations where clients either have not completed the funding process for their estate plan, or they have not continued to update the initial funding of their plan. This is especially true for those who have a plan that includes a trust, but it can also be the case for those who have a will-based estate plan. Either way, the success of your estate plan will depend on an effective funding strategy for your plan.
What does it mean to “fund your trust”?
The “funding of your trust” happens when you link the ownership of your assets (real estate, investment accounts, retirement accounts, etc.) and the beneficiary designations (from things like life insurance and 401ks) to your trust-based estate plan. You cannot have an effective estate plan if you do not fully understand what will happen to each specific asset after a death or disability. It is of highest importance that you ask the following questions for every single one of your assets:
• What will happen with this asset upon my death?
• What will happen with this asset if I become incapacitated by a stroke or from dementia?
Our firm has story after story of people not being able to access bank accounts to pay their mortgage after a loved one’s death, or businesses that greatly suffer because the owner died suddenly without a succession plan or a funded estate plan. An estate plan will not work if a funding plan has not been completed.
So, how do you fund your plan?
Our planning process identifies the types of assets that you own, groups them into common categories, seeks to understand the clients’ goals and then creates an effective mapping of the next steps to properly fund the assets. You can access an example of our funding map here. This process can be very detailed, but it is absolutely critical for the ultimate success of your plan.
The growth of IRAs, 401ks and other retirement assets present challenges for properly funding these assets within the rules of the IRS.