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Imagine converting all your assets to cash.  The value of your home, portfolio, artwork, vacation property, antiques, etc.  Needing somewhere to keep this cash, you commission a local company to build a custom safe.

The safe’s principal function is to protect your cash.  You can add money to it or pull some out as needed throughout your life.  But this is no ordinary safe.  It has special features chief of which is if you and/or your spouse become incapacitated or are no longer around, the safe will only allow for distributions based on your wishes as stated when plans for the safe were drawn up.  You can, of course, change these instructions throughout your life.  You can also name a family member, friend or other entity to oversee maintaining the safe and ensuring all goes to plan.

The safe builder leaves you with a detailed list of instructions for how best to place cash inside your new vault to allow everything to run as smoothly as possible inside.  You gladly pay the builder for their time and marvel at your new investment.

Now, imagine building such a safe and then deciding to leave your cash in piles OUTSIDE the safe.

As you may have guessed from my description above, such a safe does exist, and it doesn’t even require you to sell your assets or hoard cash.  The safe is an analogy for a revocable trust, a tool which offers many of the security features described above.  It can hold your home, investments, collections, etc. while allowing for your use and enjoyment of those assets during your life.  In death or incapacitation, the trust allows for your trustee to step in and manage the assets inside the trust and/or disburse them according to the rules you established in creating the document.

The trust is put into effect when the safe builder, err, estate attorney drafts a document based on your wishes and then executes the document with your signature.  Similar to our story, however, that just constructs the safe.  An often overlooked and arguably more important step is actually putting something inside, otherwise known as funding the trust.

If a trust is unfunded at death, your assets outside the trust will be subject to your will, assuming you have one.  With or without a will, those same assets will be subject to the probate process, a public process that can be costly.  Any rules on how beneficiaries are to receive assets set forth by the trust would not apply and the trustee would not have a role in making those distributions.

There are certain assets better left outside your Trust, either for convenience or for other reasons.  An estate attorney will usually provide a detailed letter of instruction as to what assets to include in the trust and how to go about making that happen.  The attorney can assist in getting some assets transferred correctly, your financial advisor can help with others, but ultimately, the owner of the asset is responsible for knowing that all assets are registered or titled in the manner they wish.

It’s important to mention that trusts aren’t for everyone.  With the current estate tax exemption north of $11 million per person, there are fewer reasons than in the past to consider a trust.  You can certainly have a perfectly sound estate plan without one.  That said, for those particularly concerned about privacy or having a specific need or desire to control assets (i.e. how to distribute assets to young children), having a funded trust is an ideal way to accomplish some of those goals.

The end of the year is a good time to dust off that estate binder (or put one together if no estate plan exists) and review that your plan still meets your needs and intentions.  It’s also a good time to take a look at bank statements, auditors records and other sources to ensure that the assets you intend to have in a trust, if any, are registered appropriately.

If you have any questions or would like a second set of experienced eyes to review any of the above documents, feel free to give us a call, shoot us an e-mail or stop by for a meeting.