Trusts are helpful tools. But as the Michael Jackson Estate shows, the most important part of having a trust is trust funding.
First, let’s talk about what trusts are. Trusts are simply a set of rules about how something is owned. The rules, at minimum, state who has the responsibility for managing the assets that say they’re following the trust – the trustee – and who is to get the benefits from the assets – the beneficiary.
That how a trust can avoid probate. The rules can also say who is responsible for management after the first trustee dies and who benefits from the assets after the initial beneficiary dies. That means the assets that follow the rules of the trust won’t be stuck, and become part of the probate estate.
But did you catch what I said? Trust rules apply to only those assets that say they’re following the rules. That means that for the rules to mean anything, you have to go through a process of making assets follow the rules of the trust.
The legal term is “trust funding”. Titling assets to follow the rules of the trust, now or at death. That means if real estate should follow the rules, a deed needs to say so. Bank accounts and other assets, if they should follow the rules, need to say so through account ownership or beneficiary designations.
The missed step in the Michael Jackson Estate is trust funding. While he set up a trust, his assets didn’t say they were following the rules. The trust didn’t do anything.
A trust document isn’t a magic wand. It’s simply a set of rules. Documents are incredibly important to an estate plan. They set up the plan. But it’s your assets determine whether your plan happens. I call it financial organization. Understanding what you own, understanding how it moves when you die and coordinating it with your plan.
How do you start get financially organized? It starts with understanding what you have. Download an asset checklist to help you list your assets.
Getting a proper estate plan in place that actually minimizes the to-do list you’ll leave when you die is doable. You just need to understand how it works and take action. That’s why I created Your Organized (after)Life Workshop. Learn more by clicking the workshop tab.