Estate planning can seem formidable. Every step has so many potential outcomes that it’s easy to shut down and not finish. It is, however, a crucial step in ensuring your assets are handled according to your wishes after you pass away. The difficulty of planning ahead leaves people in a position where they accomplish the bare minimum or follow the steps of a guide without understanding the why and how behind those steps.
The estate planning attorneys at Clear Counsel Law Group see this attitude culminate when it comes to funding a trust. This is an underlying step in estate planning but it isn’t obvious or always talked about, so it’s easy to let slip among the seemingly more important elements of declaring assets and deciding where they should go.
The Importance of Funding Your Trust
A common mistake people make is creating a trust but not properly funding it. A common (and useful) metaphor is to think of a trust as a box where you place your assets. For a trust to be effective, you need to ensure that your assets, like your house, bank accounts, or life insurance policies, are either placed in box during your lifetime or are set to be transferred into it upon your passing.
The purpose of the trust is to manage the assets in a particular way and with particular protections. It isn’t just for sifting your life’s accomplishments out onto the beneficiaries.
For example, you have a life insurance policy. You might think, “Why not just name my child as the beneficiary directly?” Why take all the extra time and effort to make the life insurance pay to the trust only to have it turn around and pay that to my child anyway?
Directly transferring assets like this can be risky. If this hypothetical child dies before you do, the policy needs to be redirected. Or perhaps the child is a stepchild and there is a divorce, in Nevada the spousal rights that would have benefited that child suddenly severe and the life insurance policy is directed to no one.
It doesn’t have to be that dire or cut and dry, either. If your beneficiary is going through a difficult phase in life—like a divorce, legal troubles, or substance abuse—receiving a large sum of money outright might not be in their best interest.
Using a Spendthrift Provision in a Trust
This is where a trust, particularly with a spendthrift provision, comes in handy. A spendthrift provision is designed to protect the beneficiary from their own potential recklessness or misfortune. It ensures that the assets in the trust are not squandered and are used for the beneficiary’s actual benefit.
For example, if your child is dealing with legal issues or a divorce, the trust can hold back the money until they’re in a better position to manage it responsibly. This way, the assets are preserved for their well-being and long-term benefit.
Free Consultation for Your Estate Planning Needs
If you’re starting your estate planning journey or have questions about your existing plan, many law firms offer free consultations. This is your chance to discuss your existing documents, ask questions, and get professional advice on your specific estate planning needs. The goal of estate planning is to give you peace of mind. By setting up a trust with provisions that protect your assets and beneficiaries, you can rest easy knowing that your estate will be managed and distributed according to your wishes, even in complex or challenging circumstances.
It’s always a good idea to consult with an attorney, especially if you’re unsure whether your trust is properly funded or if you have specific concerns about how your assets can be handled. An attorney can review your estate plan, suggest improvements, and ensure that your trust is set up to offer maximum protection and benefit to your beneficiaries.
Remember, estate planning is about making informed decisions. During your consultation, you’ll learn about different options and ultimately decide how you want your estate to be managed. It’s difficult to make a decision if you don’t’ know what your options even are, let alone how they affect your future. An estate planning attorney is there to guide you and implement your wishes.