Creating a Will or a Trust is a monumental step in the right direction to protect your family, but if a trust is not properly funded and/or beneficiary designations are not updated, it may not avoid probate. Thus, the most significant step in funding a Trust is taking the time to either retitle accounts in the name of the Trust or to add beneficiaries making those accounts “payable on death.”
The firm will create the Trust for you, but you must add the assets yourself. Your bank will not allow us to move the funds from your checking account or change the ownership of your savings account. Instead, this requires action on your part to retitle accounts or add beneficiaries to your accounts.
We recommend that you retitle your non-IRA accounts into your living revocable trust. This is similar to changing an account name after marriage – the account remains the same (same bill pay, direct deposit, etc.) but the legal name on the account has changed. Retitling an account allows the day-to-day transactions to continue uninterrupted, but it means that the Trust is the legal owner of the account now. So, if you (the Trustee) become incapacitated, your successor Trustee can easily step in and manage your assets.
If the thought of re-establishing your bill pay recipients, changing your direct deposits, and getting a new account number is overwhelming, the other option is to make the current account “Payable on Death” to your Trust. When you pass, your account will not go through probate but will be distributed under the terms of your Trust. However, this option does not allow your Trustee to manage the account if you become incapacitated. “Payable on Death” is only effective upon death, so a Power of Attorney is necessary if someone needs to act on your behalf during your lifetime. The best course of action would be to open a new account owned by the Trust and slowly migrate funds (and bill pay, etc.) to the new account over time.
Updating Beneficiary Designations
A traditional last will and testament is not designed to avoid probate or provide for care during incapacity. However, there are ways to possibly avoid probate. Naming an account “Payable on Death” to a person will force the account payout directly to that person. The account does not become part of your probate estate and thus, is not subject to probate. A Statutory Durable Power of Attorney can authorize someone to act as an agent on your behalf for your financial transactions (including the management of bank accounts) if you become incapacitated.
A vital part of an estate plan is funding the Trust or updating beneficiaries. The documents can be confusing and institutions may not understand what you are trying to accomplish. Working with an experienced estate planning attorney at the Kazi Law Firm can help make this process easier and give you the peace of mind that you deserve.