The most common trust planning mistake wealthy families make is failing to fund their trust.
Trust Planning Mistake
I have met with 100s of wealthy families in my 25+ years in wealth management. My experience is that 8 out of 10 wealthy families do not fund their trust or only partially fund their trust. Inevitably, some or all of their estate will unnecessarily end up in probate court. Most are unaware the problem even exists.
Do Not Assume Your Trust Is Funded
Most people I meet who have a trust just assume their trust is funded. Often, their trust is not funded. If you do not fund your trust while you are alive, then your assets will need to go through probate court to be placed into your trust. It’s that simple. One of the primary benefits of a trust is probate avoidance. You lose this benefit when you fail to put your assets into your trust while you are still living. I cannot count how many times over the years I have pointed out this estate planning error to wealthy families, and they just look at me in disbelief. The common reaction I get is, my lawyer took care of this. Unfortunately, in most cases, the lawyer only prepared the trust document and was not responsible for funding the trust. Usually, when reviewing someone’s estate planning documents, I will find a letter from the lawyer instructing their client to fund their trust, but for whatever reason, the trust never gets funded.
Fund Your Trust
Once you have created a trust, you need to carry out the critical administrative step of re-titling all of your assets meant to be in the trust, to the trust. This can include your house, limited partnership investments, brokerage accounts, real estate, second home, bank accounts, etc. Until you complete this administrative work, your trust is not funded.
Do Not Rely on a Pour Over Will
While most lawyers will include a pour over will that creates a testamentary trust as part of your estate plan, you should not rely upon this backstop trust funding mechanism. When relying upon a pour over will for trust funding, you are guaranteed to go through probate. The solution is easy, fund your trust today and move your assets into alignment with your estate plan; problem solved.
Ethan S. Braid, CFA
President
HighPass Asset Management
Denver, Colorado