You Have a Trust—But is it Funded?

Empty Safe because Trusted Isn't FundedIf you’re like most people, it was a challenge for you simply to make it to the office of an estate planning attorney to make an estate plan. When you walked out the door, you were relieved, because you’d finally taken care of this obligation to your loved ones. The estate plan went in a drawer or filing cabinet, and you went about your business, satisfied that all your estate planning ducks were in a row.

If your estate plan includes a trust, however, you may have a little more work to do. As your lawyer should have told you, a trust is a vessel to contain and distribute your assets, but simply creating the trust doesn’t put the assets into it. In fact, if your trust isn’t funded, it’s largely useless.

How Do I Fund My Living Trust (and With What)?

At this point, your next likely question is, “How do I fund my trust?” If the trust document you created references certain assets you intend to place in the trust, you might think that simply identifying those assets is enough. It’s not.

In order for an asset to be in your trust, it must be owned by your trust, which means you’ll need to take steps to transfer assets from yourself (or yourself and your spouse) to the trust. With a bank account, this could be as simple as going to the bank and changing the name on your checking account or savings account from “John Doe” to “The John Doe Living Trust.” With the growing popularity of living trusts, your request to transfer the ownership of an account to the trust will not be the first one your bank has encountered.

Because people who create living trusts often do so in order to avoid probate, most people who create trusts place their most valuable assets in them. In addition to bank accounts, this includes real estate, retirement and investment accounts, and even vehicles. (Whether to include your vehicle in your trust is a judgment call. If it’s a valuable collectible, it’s probably a good idea. If it’s an ordinary vehicle you drive on a daily basis, you may not want to. If you are involved in an accident and are at fault, the other driver, seeing that your car is owned by a trust, may assume you are wealthy and be more inclined to sue you.)

For real estate, you will need to deed the property from the current owner(s) to the trust. Your attorney can help you make sure that this is done properly; the last thing you want is to believe that you have successfully transferred property to the trust, only for your beneficiaries to find out too late that a technical error kept the asset in your sole name. If you have real estate in a state other than the one in which you reside, it’s a particularly good idea to put it in your trust. Otherwise, when you die, that property would have to go through the probate process in the state in which it’s located.

With retirement or investment accounts, you will need to make sure that the identified beneficiary on the account is the trust, not you personally, or your spouse. Remember that during your lifetime, trust income will be distributed to you, so you can receive the same benefit from ownership that you would have had those assets been in your own name.

You can also fund your living trust with a life insurance policy. If your estate is likely to be subject to estate tax, you may want to consider a special trust called an irrevocable life insurance trust to protect the proceeds from taxation. The vast majority of people will not owe any estate tax however, so consider naming the trust as both owner and beneficiary of the policy. Doing so will give your successor trustee better control over the benefits so they can be readily distributed as needed.

Obviously, some property, like artwork, coin collections, furniture, and so on, doesn’t have a title, deed, or a beneficiary. How can you place that property in your trust? Your attorney can help you draft a document assigning certain listed personal property to your trust, but perhaps the wisest course of action is to have your attorney prepare a pour-over will. This is a will that literally leaves all the property owned in your sole name to the trust. Why not just fund your trust with a pour-over will in the first place? The assets distributed by a pour-over will may need to go through probate. If probate avoidance is one of your goals, it’s best to place your more valuable assets directly into the trust.

What If I Need Help Funding My Trust?

We understand: it can be hard to make it to the post office on an average day, much less make the arrangements to correctly fund your trust. We hope this blog post has given you some needed guidance. If you feel like you need more, we invite you to contact our law office. Whatever you do, don’t put off funding your trust any longer.

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