Trust Funding: The Missing Link in Your Estate Plan

Overview

Trust funding is the most overlooked step in estate planning, yet it is the only way to ensure your plan actually works. As Michael Rutkowski explains, "funding" is simply the process of tying your assets to your trust. If your home, bank accounts, and investments remain in your individual name, they are not protected by your trust. In Michigan, this oversight often leads families directly into probate court, even if they have a signed trust document. This video walks through the technical "Navy" logic of asset retitling and the "Rose" comfort of knowing your family is truly shielded.

Key Takeaways:

• Tying vs. Funding: "Funding" isn't about putting new money into a trust; it's about retitling what you already own so the trust "sees" and controls those assets.
• Probate Avoidance: Assets not tied to the trust are subject to Michigan probate, which can consume 3% to 5% of your estate's value in fees.
• The 5-Year Look-Back: For asset protection trusts, the Medicaid penalty clock only starts ticking once the trust is funded, not when it is signed.
• Michigan Real Estate: We use the Lady Bird Deed to fund your home into the trust, ensuring it bypasses probate while you maintain total control.
• Done-For-You Service: Unlike generalist attorneys who give you a "to-do" list, we handle the funding for you to ensure your plan is fortified.

Full Transcript

Kerry Guard 0:00
Kerry Mike, let's talk about asset protection and specifically trust and the funding piece. I've heard you say so many times, so many times to poor folks who show up with a trust that isn't funded that it's actually worthless. So help us understand why it's worthless and what to do about it?

Speaker 1 0:21
Great, great question. And I think the term itself is a little confusing. You know, using the word funding, it's like, okay, who's putting money into this thing? Or, like, what does that actually mean? So, so funding is just really the process when you do estate planning and do a trust, it's a process of tying your assets to your trust. And I use the word tying because we want to make sure this all works. Everything needs to flow through your trust after you pass away, but depending on the type of trust you do, will dictate the funding activities that need to happen to make sure it work. And let me, let me just give you an example, and then I'll see if you're following me. So a lot of times we're either talking about a revocable or an irrevocable style of trust. Well, there's lots of varieties of both of those. But the main thing to understand is that with a revocable trust, the main goal is probate avoidance. So we want to make sure that when someone passes away, that we avoid the probate court and everything flows through your trust to the people that you decide. Then there's irrevocable trusts, same goal, but a lot of times there's more comprehensive goals that go along with it, like asset protection, tax planning, special needs trust. These are all types of irrevocable trusts. And so the main concept there is, with a revocable trust, we need just to make sure that once you pass away, those assets are flowing through the trust. But with an irrevocable trust, those have to be owned by the trust and able to get the benefit that you're looking for, whether it's asset protection, whether it's tax planning, but in any event, with an irrevocable trust, the asset, the bank account, the checking account, the savings account, the home, must be owned by the trust to get those benefits. Does that make sense?

Kerry Guard 2:15
It does. I just want to be clear, because we talk about two different kinds of trust, the revocable and irrevocable, regardless of the trust, the Trust has to own the assets, or with revocable just needs to be tied to the assets, versus irrevocable where it needs to be owned, correct?

Speaker 1 2:30
And so that's where I was going with that is with a revocable trust, you kind of have two options. You can make the trust the beneficiary of an account. So with like a checking or a savings account that might be what's called a Pay on Death, so that when you pass away, it flows into the trust. With a home, you might use something called a Lady Bird Deed, that's essentially a tool that is like a beneficiary designation for your home, that when you pass away, it automatically flows into your trust. So you have two options there of whether you're going to use beneficiary designations or you're going to actually retitle the asset into the revocable living trust. That's a whole nother conversation and strategy today we're focusing on funding, but the end goal is, everything you own must be tied to your trust, whether it's through beneficiary designations or retitling of the asset so that it's actually owned by the trust. Does that make sense? Yes, yes. Okay, and and so here's where I get so fired up about it, is that none of this works, meaning estate planning, doing a trust, none of these things work unless you actually do the funding piece of it all. And so many lawyers stop short of actually assisting in that funding to make sure it gets done. And I can't tell you how many times over the years where we've met with families who have done a plan with another attorney, maybe they've moved somewhere closer to us, or their attorney retired, or whatever the case may be, the attorney didn't help with the funding. And we go through all the changes that they may want to make to their plan, and then we get to the conversation of, okay, tell me a little bit about what is in your trust. And I get this deer in headlights look all the time like, What do you mean we paid all this money isn't everything in our trust, and come to find out, nothing is in their trust, which then means they're back in the probate court, like everything that they were looking to accomplish into doing estate planning is not going to happen, which to me is, I don't know it seems like malpractice or something, but in any event, it has to be done. You have to get your funding done. And it's something we're so passionate about. We help the families that we work with get the funding done, to make sure that that part of it is complete. But at the end of the day, whether you're using us. Or someone else, you have to tie all your assets to your trust. Kerry, does that make sense?

Kerry Guard 5:05
It does. Can you walk us through a little bit about that process? Is this something people can do on their own, or do they have to use a partner like you or another law firm?

Speaker 1 5:13
Yeah, great question. So you have a couple options when it comes to funding. It is something that you can tackle yourself. You just need to make sure to do it. And so let's, let's go through a couple examples. Real Estate might be a little bit more tricky. That typically needs to be done by a title company or an estate planning attorney to help but your standard bank accounts, retirement accounts, those kinds of things can easily be managed by you. What this would look like is, what I tell families all the time is, you literally take the binder that you get from the attorney. Most times you're going to get a binder or some kind of packet from the attorney, take that into Chase Bank. You tell the banker, look, I did a trust. Help me. And they they do this enough that they will be able to walk you through the forms that need to be filled out to make those changes, to assist it literally is just the legwork of going around to you know, whether it's fidelity. Charles Schwab, if you have a financial advisor, it's just communicating to them, Hey, I did a trust, probably because they recommended it. And here is the documentation you need. Does that make sense?

Kerry Guard 6:25
Yep, yep, 401, K, all of that. Like, you just need to sort of go to whoever you're with, and

Speaker 1 6:30
it looks a little different depending on the type of account. Like, for instance, a credit union Chase Bank, we know that they're going to require you to physically walk into the branch with your estate plan to make any changes. Now, if it's a joint plan with a married couple, both of you need to go in, so make sure you're both maybe you know this is date night, right? Like, where you're gonna you're gonna go get your funding done, and then you're gonna go to your favorite restaurant afterwards. It's just something you got to do. I always joke that that's what needs to happen, but and then there's, then there's the accounts that we know you have to do in person. Then there's the ones that can be done online, like a fidelity or a Vanguard type of account, where you can log in and actually go to the spot where it says, you know, beneficiary designations, and you can go ahead and put in your trust information there. Usually you're going to want to look at something called a Certificate of trust in order to get the information that you need to properly fund your trust. It's going to say things like, what's the name of your trust? When was the trust created, who's the current acting trustee of the trust? And then one thing that kind of catches people off guard is you might get asked, like, what's the birth date when you're making a beneficiary designation? That would just be the date that the trust is created. That makes sense?

Kerry Guard 7:57
Yep, yep. Quick question. Maybe it's not quick. We'll find out might be a whole nother show beneficiaries. This is a lot of work, having to literally, physically go into branches and say that you need to do this thing every time you if you want to ever change your beneficiaries. Does that mean you have to go update all of this paperwork as well? Or because they're tied to the trust? You just update the trust. You're good to go.

Speaker 1 8:19
Great question. That's one of the big benefits of doing proper estate planning with a trust, is that once your assets are tied to the trust, every change that you make in the future to the trust. Maybe you switch the order of Trustees, or you change the percentage of who gets what when you pass away. Nothing needs to be done at the financial institutions, you can make as many changes as you want to the trust, and you don't have to go back around to all the institutions. Really. You're only going to have to do that exercise once, unless, for some reason you switch banks or switch financial advisors. But usually, if you're engaging with a financial advisor, they're going to walk you through this whole process too. They're going to help

Kerry Guard 9:00
for sure, amazing, amazing. Okay, please, please, please make sure that your trust is funded. If you're not sure, you're welcome to give us a call or visit our website rutkowskilawfirm.com. We are here to support you, and if you're just want to stick around and learn more about state planning, keep on watching. Thank you so much. My pleasure. You

Is your trust actually funded, or is it just a binder on a shelf? Don't leave your family's future to chance. Schedule a consultation today at any of our Michigan offices in Rochester, Bloomfield Hills, Sterling Heights, Ann Arbor, or Marquette.