Is your trust properly funded?

An unfunded trust is an expensive piece of paper. It is also common. We see it most weeks, usually in plans that were competently drafted and then never finished.

The concept is straightforward. A trust only controls what it owns. If your home is still titled in your individual name, the trust does not control your home, and your home goes through probate, which is the outcome the trust was created to avoid. Funding is the work of moving ownership so the trust holds what the plan assumes it holds.

A self-check

Retirement accounts are the exception

Do not retitle an IRA or 401(k) into your trust. Doing so is treated as a distribution and triggers immediate income tax on the entire balance. These accounts stay in your name; what you review is the beneficiary designation.

Should the trust be named as that beneficiary? That question has real consequences under current distribution rules. Sometimes it is the right answer, for example with a minor beneficiary, a beneficiary with a disability, or a blended family. Often naming individuals directly produces a better tax result. We work it through for each account.

What a funding review looks like

• We pull the current recorded deed for each Hawaii property and confirm how title reads
• We inventory accounts and identify what is registered to the trust and what is not
• We review every beneficiary designation against the intent of your plan
• We prepare and record whatever deeds are needed to close the gaps
• We give you a written summary of what is in the trust, what is outside it, and why

We do this for plans we drafted and for plans drafted elsewhere. Most of the time the review is reassuring, and now and then it turns up something urgent.