By Kevin Collier
Many of the clients of elder care attorneys create trusts to either avoid probate or protect assets for numerous reasons. Once you have created a trust, the next step is “funding” the trust. This simply means transferring title of your assets to the new trust entity. Without funding your trust, you’ve defeated the purpose of the exercise. Most clients who pay attorneys to create trusts drop the ball when it comes to funding their trusts. They’ve wasted their money. Following through on the instructions of your attorney to retitle assets is a critical step.
One of your most important partners in helping you follow through in funding your trust is your financial advisor. Investments, annuities or bank accounts that you own personally will likely need to be retitled to the trust name. In the case of retirement accounts, your attorney will often recommend that your beneficiary or contingent beneficiary be named as the trust. Your advisor can help by providing the paperwork and the assigning of account numbers for the new trust entity.
In addition, the financial objectives of the trust will need to be considered so that an appropriate investment strategy can be determined. Your financial advisor will be a key ally in this endeavor. For instance, some trusts are meant to maximize the value to the ultimate beneficiaries such as sons and daughters. An appropriate investment strategy might include positioning in growth assets by utilizing tax-efficient mutual funds or exchange traded funds. Another objective might be to produce income to help pay for long term care expenses.
Recently, our firm started working with a son and daughter who are acting as trustees for an asset protection trust for their elderly mother. Mom has recently moved out of her home into an assisted living facility. The trustees gathered together Mom’s CDs, bank accounts, and a few investments and retitled those assets into the trust. They also sold mom’s house and contents to provide additional principal to the trust. When we first met the trustees, they were cash flow negative over $2,000 per month because mom’s income was not sufficient to pay her expenses. They were spending down the principal mom had worked hard to accumulate over her lifetime. Once the assets were funded into the trust, we were able to reposition into a portfolio of income-producing investments.
Once you’ve created a trust it is an excellent time to re-evaluate your objectives and the types and kinds of investments you are using. Getting a “second opinion” from a trusted financial advisor is an excellent way to determine if you are already on the right path or if there is an opportunity to make improvements. Be sure to ask your attorney for the name of an advisor that they regularly work with in these matters. A professional referral such as this is usually a huge step in the right direction.
This is a hypothetical situation based on real life examples. Names and circumstances have been changed. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or strategies may be appropriate for you, consult your financial advisor prior to investing.
This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.
Kevin Collier is President of Collier Wealth Management in Hendersonville. For more information, call (615) 826-5203 or visit www.collierwealth.com.