Funding Trusts with Life Insurance & Retirement: Can You

In a standard estate plan, we don’t typically put insurance proceeds into a trust. The reason for that is because life insurance proceeds are not considered part of the taxable estate. Depending on where your estate tax is when you are doing your planning, sometimes it’s better to have life insurance proceeds pass to a specific individual or several individuals. Every estate plan needs to be different and it needs to be tailored to the individual or to the couple to meet their goals. Sometimes if you just cookie cutter it and give a generic answer, it’s not going to be the right answer for everyone. I would say, generally, that’s what we do. Generally, we have it passed outside of the estate.

However, the case may be a little different if you need to control the life insurance proceeds after you are gone, meaning you want a certain amount to be held for a certain amount of time so it doesn’t all get spent really quickly, or perhaps there is a child who was called “a bad apple.” Maybe they’ve engaged in some bad behavior in the past or you just know that there will be issues with that person if they were to inherit a large sum of money, you’d want to make those life insurance proceeds go into the trust to make sure you control how those proceeds are used after you are gone. The real answer is that it depends on what your goals are but if there is a general rule, I’d say you want it outside of the trust.

Essentially, you can’t put an IRA into a trust while you are alive. That’s an impossibility but you can name a trust as a beneficiary of the IRA and if the trust is a beneficiary after you are gone and the IRA still has money in it, that money can then be distributed pursuant to the terms of your trust. Most people put their spouses as their first beneficiary. That is again similar to life insurance and it can pass outside the estate but if you want to control it, put in the trust as the beneficiary and the trust will control it after you are gone.

Can A Vehicle Be Put Into A Trust?

It really does depend. How long are you going to keep the vehicle? Is the vehicle paid off? Most people, will get a new car every 3 to 4 years. Some people carry loans on their cars. If so, they can write them off for business purposes. If that is the case, you definitely do not want to put the vehicle in the trust. Insurance is also another issue. Sometimes if you have a vehicle insured, they will only insure it to the person and not to a trust. You want to have it in your name so that you can have the proper car insurance that you need to. It really does depend. Some other things to think about is if it’s a collector’s car that you are going to keep forever, or are you only going to keep the vehicle for, say, 10 years? Can you only drive it on occasion?

Maybe it is something that you actually want to put in your trust if it’s paid off. If it’s not a paid off vehicle, you can’t change the title without paying off the car.

What Is The Process Of Adding New Assets To Your Trust?

It really is a titled document. For example, in real estate, the title is a deed. Ownership of the accounts is the account statement. For personal property that don’t have titles, that car has a title or what is called pink slips. That’s called a bill of sale. You are going to sell, you are going to transfer or document of transfer diamond rings or wedding rings or watches or gold, silver, whatever your physical property is that you are going to put into it, your tangible goods, you simply need to have a bill of sale or a transfer document that you sign and date and include in your trust. That does the same thing as a deed or a title transfer would for a car or a house.

What Happens If A Trust Lays Dormant And Isn’t Funded?

It depends on the type of trust because there are hundreds of different types of trusts. Some trusts have regular tax reporting requirements, have separate what we call EIN numbers or federal tax ID numbers. Those types of trusts need to be funded and need to be managed on a regular basis because they are filing taxes every year and there needs to be distribution done either quarterly or monthly or semiannually or annually depending on the terms of the trust. When we are talking about estate planning trusts like revocable living trusts, you could have a trust that’s sat there for years, decades even without anything going on or anything changing hands or anything being funded and it still is a good trust even though it doesn’t file tax returns and it doesn’t do anything else.

The moment you find a trust and it’s notarized, that trust is actually breathing life into a piece of paper. That piece of paper is now a legal entity that can own things and do things. You give life to a trust by funding it. What a trust does in its life is completely up to you or the person that funds the trust. It doesn’t necessarily grow old or dormant unless we revoke it into a specific document that says I’ve revoked this trust and it no longer exists.

Additional Information About Funding A Trust In Utah

It’s probably the number one most overlooked item in estate planning. I can’t tell you how many probate cases we’ve done where people come in with a trust document that’s signed and notarized and it looks so wonderful in the perfect looking binder. The real things have never been put in it and we end up going to court regardless of the trust existing simply because somebody didn’t do it when they were alive. It is something that is overlooked all the time and it is something that is very important.

What Can Someone Do In Probate Court If A Trust Has Not Been Funded Properly?

It does depend on whether they have a will. If they have a will and the will says if anything is not in my trust, I meant to put it in my trust, then we are okay. We can put the asset in the trust and we can move on. It’s just an extra step and it’s more costly. But if there isn’t then we are looking at doing the intestacy statute and we are looking at doing the standard probate. People probably are going to get items that they weren’t supposed to get because they didn’t do it right to begin with.

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