I'm a Wealth Planner: Don't Skip the Estate Planning Step That Makes It All Work
An effective estate plan — more than just signing a will or creating a trust — requires a three-step process of design, structure and the vital, often-missed step of funding your assets to ensure your wishes are legally executed.
Editor's note: This is part two of a two-part series about estate planning. Part one is These Are the 3 Pillars You Need Before You Build Your Estate Plan.
In the first article in this two-part series on estate planning, I shared the three foundational financial pillars you need to have in place before creating your estate plan. This article also comes in threes — the three-step process for executing an effective estate plan.
When most people think about estate planning, they picture it as signing a will or trust and checking the box as complete. The documents are drafted, notarized and filed away, and it feels like the job is done.
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In reality, estate planning is not a single event. It's a three-step process: design, structure and funding. While the first two steps get the most attention, the third is often overlooked. That's the problem, because without funding, even the most carefully drafted trust might not accomplish what it's supposed to.
Understanding how these three steps work together can mean the difference between an estate plan that functions as intended and one that only exists on paper.
Step 1: Estate design: Deciding what to do with your assets
The first step in estate planning is design. This is the vision-setting stage at which you determine what you want to happen with your assets and how you want them managed.
These conversations should focus on questions such as:
- Who should receive your assets?
- When should they receive them?
- Should distributions happen all at once or over time?
- Do you want to provide protection for beneficiaries?
- Do you want control of how money is used after you're gone?
This stage is less about legal language and more about understanding goals. It also requires a broader look at your financial life. Your investments, retirement accounts, tax considerations and long-term care planning all influence what type of estate plan makes sense.
For example, if you're someone who wants to control how assets are distributed over time, you might need a trust.
On the other hand, if you're comfortable with direct transfers, you might want to rely more heavily on beneficiary designations. These decisions shouldn't be made in a vacuum. They depend on how assets are structured and the outcomes you're trying to achieve.
Step 2: Estate structure: Putting legal documents in place
Once the estate design is in place, the next step involves how to properly structure your estate. This is typically when an attorney is called in to create the legal documents that support your goals and wishes.
These documents could include a will, a revocable living trust, powers of attorney and healthcare directives. This step puts your wishes into a definitive written plan, translating your goals into legal instructions that can be executed later.
This is also when many people must decide between a will and a trust. Though frequently used together, there are distinct differences between the two.
A will directs how assets should be distributed after death, but it must go through probate, which is the legal process that oversees the division and distribution of assets among beneficiaries.
A trust is a separate legal entity that can own assets during or after your lifetime, often avoiding probate and allowing more control of how assets are managed.
Because trusts offer additional flexibility and control, many people choose to go that route when creating their estate plans. But this is also where a common misconception begins: Signing trust documents doesn't automatically place assets into the trust.
That leads to the most critical and often overlooked step.
Step 3: Estate funding: Putting the plan into action
Funding your estate is the process of transferring assets into your trust or aligning beneficiary designations so your estate functions as intended.
Without funding, a trust can exist legally but have no authority over any assets. If that's the case, the estate plan may default to probate or distribute assets in ways that don't reflect your wishes.
Unfortunately, this happens more often than people realize. Someone might go through the effort of creating a trust, only to leave their home, bank accounts and investments titled in their individual name. When that happens, the trust doesn't control those assets. It essentially becomes a document sitting on a shelf.
Don't let missteps ruin your estate plan. Work with a financial professional who can protect and preserve your assets and help you leave a legacy for the next generation.
Funding requires action. Depending on the type of asset, this could involve changing ownership or updating beneficiaries. Assets commonly found within a trust include real estate, after-tax brokerage accounts and bank accounts. For example, if you want your home governed by your trust, the deed must be updated so the trust becomes the owner instead of you.
Other assets, such as an individual retirement account (IRA), cannot be owned by a trust. These accounts must remain in an individual's name while they're living. However, they can name a trust as a beneficiary in certain situations, allowing assets to flow into the trust upon death.
A complete estate plan requires coordination
Estate planning is most effective when all three steps — design, structure and funding are completed one after the other. The design clarifies your goals. The structure puts legal documents in place and funding is what makes the entire plan work.
Without it, your wishes might not be carried out the way you intended.
If you've already created a will or trust, it might be a good idea to review it alongside a professional to determine whether your assets are properly aligned with your wishes. A trust that owns the right assets can help ensure your plan is executed without heartache and financial hardship.
At Blue Ridge Wealth Planners, we believe everyone deserves to have their wishes respected and legacy preserved. A thoughtful and well-coordinated estate plan will help you better protect your assets, not only for yourself, but for your loved ones and the causes closest to your heart.
Blue Ridge Wealth Planners is an independent financial services firm and uses a variety of different investment strategies. This is for informational purposes only and is not intended to serve as the basis for any financial decisions, nor should it be construed as legal or tax advice.
Related Content
- Beneficiary Designations: 5 Critical Mistakes to Avoid
- Is a Living Trust the Right Choice for Your Estate Plan?
- The 4 Estate Planning Documents Every High-Net-Worth Family Needs (Not Just a Will)
- I'm a Wealth Planner: These 3 Steps Can See You and Your Heirs Through a Wealth Transfer
- The Middle Wealthy Are the Goldilocks of Retirement, But Where Do You Find the Financial Advice That's 'Just Right'?
