Q: I have CDs and a money market account which are currently titled in my name. Should they be re-titled into my trust account?
A: Probably. It’s a little hard to give an absolute yes or no without reviewing the entire estate plan, but the general rule is your assets should be funded into the trust.
Remember that a trust only controls assets that have been funded into it. If you leave things like CDs and bank accounts out of the trust, it can’t control them
Now I’m not saying that an asset left out of a trust won’t eventually find its way into the trust. Chances are you also executed a pour-over will when you created the trust. A pour-over will usually directs probate assets into the trust.
The problem is, you more than likely executed a trust to avoid probate. By leaving assets out of the trust, you could create a probate situation which the trust should avoid.
Now, sometimes I’m asked, “Is it OK to leave the asset out if the account has a Payable on Death (POD) or Transfer on Death (TOD) designation?” If the account is POD or TOD, it will likely avoid probate. However, just because the asset avoids probate doesn’t mean it will be transferred in the same way that the trust provides.
Also remember that a POD or TOD designation doesn’t mean that the beneficiary has any control over the asset during your lifetime. If you become incapacitated, who can make decisions about what happens to the asset?
If it’s in the trust, the trustee or successor trustee can control the asset during your lifetime. However, if it’s not in the name of the trust it may be under the control of an Attorney-In-fact (AIF), or perhaps a court-appointed guardian.
If that person isn’t also the trustee, problems could arise. Remember that a trustee and an AIF’s interests may not always coincide.
I don’t want you to think that there is never a good reason to leave an asset out of a trust. There could be. However, you should know what that reason is before deciding to leave the asset unfunded, not after.
Finally, remember that you have likely spent a great deal of time and money preparing a sophisticated estate plan. If you fail to follow the plan or worse, fracture it, unanticipated things can happen. My advice is that you trust the plan by funding the trust.