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As we wrap up our series on trusts, we focus on realigning your assets after trust creation. Realignment involves updating asset ownership and beneficiaries. Last month, we discussed common roadblocks encountered when realigning your assets. Another common concern is that realigning will overcomplicate your existing finances, especially if you need multiple trusts. In reality, the goal of asset realignment is to simplify and streamline your estate for the future.

Let’s say you have just signed a revocable living trust to avoid probate, an irrevocable trust to build asset protection from Medicaid, and a retirement trust to extend the distributions timeframe for beneficiaries. You’ve taken an important first step, but these trusts do not accomplish your goals if they are empty or are not properly designated! Neglecting to realign even one asset can adversely affect your entire plan.

For instance, if you do not fund your car to the revocable living trust, your loved ones will incur the time and expense of probate for that vehicle. Unlike many other states, there is not a small estate exception in West Virginia, so even settling an estate with the only asset being a vehicle can take months. If you do not work with a real estate attorney to transfer your home to your irrevocable trust, it may be exposed probate and potentially estate recovery. Estate recovery is the process where if you received nursing home Medicaid during your lifetime, the state may put a lien on your home after your death for up to the amount they paid for your care.

Checking and savings accounts you use on a daily basis are usually retitled into the revocable living trust. Depending on your goals, other non-qualified accounts may be retitled to the revocable or the irrevocable trust. If you have accounts that have been dormant or no longer serve a purpose, realignment is a great time to consolidate and simplify.

Keep in mind that CDs and annuities may have surrender penalties to access funds before the maturity date. Be sure to discuss your bank’s policy on retitling CDs to the irrevocable trust.

Your IRA is handled differently than other accounts. If you have a retirement trust, you will update the beneficiary of the account to name your retirement trust as initial or contingent after your spouse. Remember, realigning qualified retirement accounts to any other trust would likely cause unintended tax consequences!

You also don’t want to forget about your whole life insurance policies. Because they have cash value unlike group and term policies, they are countable for Medicaid purposes. In order to build protection, you will update the owner and beneficiary to name the irrevocable trust.

Keep in mind that every time you add new assets to an irrevocable trust, the start date of the five-year protection resets for all assets in the trust, so it is important to complete the realignment process promptly. If you inherit or purchase new assets, it is always a good idea to talk to your attorney about how those accounts should be titled so that you do not affect your lookback.

Thank you for following along in our series on trusts. We hope you find the process a little less daunting! Contact our office today to set up a consultation to figure out the best estate plan for your needs.