What Does Funding a Trust Mean?
You may have heard of funding a trust, but what’s the process? We have the details.
Learn here now.
Introduction
Trusts are becoming a more and more popular route to take when it comes to tying up any loose ends and creating a formal estate plan. Though the creation of the trust itself doesn’t do you any good at all unless you fund the trust. This means transferring your assets into the possession of the trust.
Let’s take a look at how you fund a trust – and why it is so important that you do.
What is a Trust?
A trust is used in estate planning to transfer assets from oneself to an entity (the trust). It can hold assets such as houses, cars, investment accounts, and so on. Though it is important to note that there are many different types of trusts – each used for its own particular reasons.
The individual who creates the trust is known as the grantor, settlor, or trustor. The person who is designated to administer the trust upon the death of the grantor is known as the trustee.
Generally speaking, those who put their assets in a trust shouldn’t have to worry about their estate going through probate when they die. Instead, a trustee will step up and distribute the assets in the trust to the beneficiaries as decided by the decedent before death.
It not only makes the distribution of assets a bit more private, but it also helps allow the beneficiaries to move forward without delay.
Benefits of Having a Trust
So, why would someone choose to create a trust as part of their estate planning? There are many benefits to choosing a trust, such as:
- Avoiding the probate process
- Keeping financial matters private
- Maintain control over assets after death
- May provide tax benefits
Having a trust set up may also help should you become ill or disabled before death – and avoid a conservatorship.
First things first, you have to fund the trust.
Funding a Trust
As we said, funding a trust means transferring assets to it. It takes everything out of your name and places it in the trust’s name. The trust is technically now the owner of those items – and you are not. For those assets that involve a beneficiary’s name, that gets switched to the trust as well since that insurance money, for example, would be an asset.
Should the grantor die or become ill or incapacitated, the selected trustee will be able to take control of the trust and make decisions. They will also be able to transfer assets to and from designated beneficiaries as listed in the trust.
But to fund a trust, the grantor has to do more than just create the trust. It involves transferring the ownership of the assets over to the trust. So, for instance, an asset that has a title, such as an automobile, will have to have the title transferred to the trust as the new owner. And for those items that don’t have a title, including jewelry or electronics, will have to be transferred by way of a signed document. This is known as an Assignment of Property.
Assets commonly used to fund a trust include:
- Real estate
- Bank accounts
- Securities, such as stocks, bonds, and brokerage accounts
- Certificates of Deposit
- Life insurance
- Retirement accounts
- Health and medical savings accounts
- Business interests
It is important to carefully comb through every type of asset and make sure that it is transferred into the trust – and done so properly. And if you purchase assets after the trust has been funded, you will want to make sure that asset is titled in the trust’s name, too
The Importance of Funding a Trust
Funding the trust is, perhaps, more important than creating the trust in the first place. After all, a trust that doesn’t have anything transferred to it is useless. And if they are transferred, but are not done so properly, it could lead to some potentially dangerous delays that could impact your family upon your death.
A trust that is not properly funded means that:
Your trustee will not have control over your assets. If you don’t title your assets in the name of the trust, your trustee will have no control over the property when it truly matters.
Your designated beneficiaries may not receive the assets. It doesn’t matter if you have designated a specific asset to a specific beneficiary in your trust. If the trust is not properly funded, then your trustee will not be able to transfer the assets in the trust to the designated beneficiaries.
Your assets may have to go through probate. Most people create a trust in order to avoid probate. But without the trust being funded, the decedent’s assets will be stuck going through the probate process regardless of intentions.
The Role of a Lawyer
Having an attorney handle the creation of your trust as well as the funding of it is important. There are a lot of aspects surrounding a trust that should be addressed – and it needs to be done so correctly. One small error, such as forgetting to fully and properly fund a trust, can have detrimental results.
When you hire an experienced estate planning attorney to help you create and fund your trust, you will want to work together to accomplish it. You are the one responsible for funding your trust. However, your attorney will review all of your assets, noting which assets you can be responsible for retitling and which assets he/she will handle. This will get the job done faster. Transferring the title to your car, for instance, is something you can handle at the DMV whereas something more complex to retitle, such as real estate.
The process of funding a trust is not difficult, but it is incredibly important to get it done right. This is not the time to try and save on legal fees. Your attorney will go over all the details of your trust to ensure that your assets have been transferred into the trust and that your designated beneficiaries are properly completed.
Having an attorney on your side will bring you a sense of peace.
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