Asset Transfers

Don't get me wrong. Trusts are far better than wills, if the goal is to avoid probate. Nonetheless, trusts have been largely oversold because the public has a distorted perception of how they work. A large part of the misconception comes from the idea that estate planning is a product and not a service.

Many people are under the mistaken impression that if you have a revocable living trust, everything automatically happens - that you don't need to transfer assets to the trust, and when the person dies that the assets are automatically and magically transferred to the beneficiaries.

Although trusts are hugely more efficient and cost effective than a probate, additional work is required and upon death trust administration is required.

A trust without asset transfers is like an empty suitcase. Just like a suitcase needs to be packed, a trust needs specific asset transfers. Real estate is transferred through a trust transfer deed. Brokerage and other non tax-deferred investment accounts need to be transferred to the trust through properly filled out change of ownership forms. Partnership and notes and LLC interests need to be assigned to the trust. Change of beneficiary forms need to be submitted for direct transfer of assets like life insurance, IRA's, annuities and 401(k)'s. This is hands on detailed work, called funding. A schedule of assets should be also assembled, signed and notarized. Leaving on that final journey with an unfunded trust is like going on your vacation with an empty suitcase. Your estate will wind up in probate and many unintended tax liabilities can result in the areas of estate tax, income tax, capital gains and property taxes. This is why full service estate planning, which includes funding, is the ticket, and why the product oriented self help approach is short-sighted.