Planning · July 08, 2020

The Essential Step To Fund Your Revocable Trust

A revocable trust is one where the grantor can make ongoing changes when different needs arise. It also allows a grantor to avoid probate (going through the court process), maintain investment management continuity in case of disability, consolidate assets and achieve desired legacy-related objectives. Too many times, however, the grantor (person funding the trust) neglects an essential final step that prevents the trust from fulfilling its intention.


In addition to a signed trust agreement, assets intended to fund a revocable trust must be properly titled to ensure the grantor’s intentions are met. The following hypothetical example illustrates what can happen if assets are not properly titled:

The Situation

Janet Smith has a son and two daughters. Over the years, she provided generous financial assistance to her son. Feeling that she had sufficiently helped her son, Janet wanted her remaining assets to be split evenly between her daughters upon her death.

Intended Solution

Working with her attorney, Janet created the Janet Smith Revocable Trust. The trust stated that her assets would be split equally between her daughters and her son would receive no additional funds.

The Problem

Janet’s assets were managed in brokerage accounts titled jointly with Janet and her son. To fund the trust according to her wishes, Janet’s attorney instructed her to change the brokerage accounting titling to the Janet Smith Revocable Trust. Unfortunately, Janet never took this final, essential step.

Unintended Consequences

Janet died a year later and because she never changed the titling, her financial assets passed to her son. Even though she stated her wishes in writing, the failure to change the titling of her assets prevented funding of her trust. As a result, Janet’s son received the assets due to the joint ownership with right of survivorship. Her daughters received nothing.

To avoid a similar situation, take these steps to ensure your trust instructions are followed to the letter:

  1. When you create a trust, be absolutely certain you understand what happens to your assets if you die or become disabled.
  2. Be sure the assets you will use to fund your trust are titled in the name of the trust. You might even consider funding the trust while you’re living and name a corporate trustee. This decision provides proper asset management, consolidated tax reporting and ensures all is in order if you die or become disabled.
  3. Work with your corporate trustee to keep your financial planning current, and make needed updates if your objectives or tax regulations change.

Failure to properly title assets intended to fund a trust happens far too often and could easily be avoided. Talk to your wealth manager about how a trust can enable your current assets to create future security and opportunity for others.

Insights

A few financial insights for your life

No results found

Links to third-party websites may have a privacy policy different from First Citizens Bank and may provide less security than this website. First Citizens Bank and its affiliates are not responsible for the products, services and content on any third-party website.

This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.

Your investments in securities, annuities and insurance are not insured by the FDIC or any other federal government agency and may lose value. They are not a deposit or other obligation of, or guaranteed by any bank or bank affiliate and are subject to investment risks, including possible loss of the principal amount invested. Past performance does not guarantee future results.

First Citizens Wealth Management is a registered trademark of First Citizens BancShares, Inc. First Citizens Wealth Management products and services are offered by First-Citizens Bank & Trust Company, Member FDIC; First Citizens Investor Services, Inc., Member FINRA and SIPC, an SEC-registered broker-dealer and investment advisor; and First Citizens Asset Management, Inc., an SEC-registered investment advisor.

Brokerage and investment advisory services are offered through First Citizens Investor Services, Inc., Member FINRA and SIPC. First Citizens Asset Management, Inc. provides investment advisory services.

Bank deposit products are offered by First Citizens Bank, Member FDIC.