Funding a trust is the process of transferring your assets to the ownership of your trust. Once ownership is transferred, the trustee will have control of these assets.Learn why funding a trust is important and how it is done.
Funding a trust refers to taking assets that are titled in the settlor’s name or in joint names with others and retitling them into the name of the settlor’s revocable living trust. It can also involve taking assets that require a beneficiary designation and naming the revocable living trust as the primary or secondary beneficiary of those assets. The person who creates and funds a revocable living trust can be referred to as the settlor, grantor, trust maker, or trustor. Settlors may also chose to designate themselves as trustees or beneficiaries, depending on the reasons for the trust. Funding a revocable living trust ensures that the settlor’s property is governed by the terms of the trust agreement:
- After the settlor dies, the selected death trustee will be able to manage and then transfer accounts held in the name of the trust to the ultimate beneficiaries named in the trust agreement.
How Funding a Trust Works
For a revocable living trust to function properly, it is not enough for the trust maker to simply sign the trust agreement. After the agreement has been signed, the settlor must “fund” his or her assets into the trust. Funding a trust involved transferring property to the trust. How that works will depend on the type of property. For some assets you will need to transfer ownership to the trust. For others, you may need to designate the trust as a beneficiary.
- Titled property (boat, car, motorcycle, airplane, etc): Obtain a new title showing the living trust as the owner.
- Untitled property (jewelry, collectibles, etc): Create a signed and dated document called an Assignment of Property that designates the trust as the owner.1
- Bank accounts: These vary by bank and may involve closing on account and transferring funds to a new account owned by the trust.
- Certificates of Deposit (CDs): Wait until the CD matures, then open a new CD in the trust’s name in order to avoid early withdrawal penalties.
- Securities (stocks, bonds, brokerage account, etc): These can vary by brokerage and type of security. Stock and bond certificates may need to be reissued with the trust as the owner. Ask your broker how to transfer ownership of these assets.
Real estate: Transfer ownership using a quickclaim deed If you have a mortgage or belong to a homeowners’ association, you may need permission.
- Business interests (shares in partnership, LLC, corporation, etc): Retitle shares in the name of the trust.
- Life insurance, retirement accounts, health savings accounts (HSAs), medical savings accounts (MSAs): Designate the trust as the beneficiary for each account or policy. If you are unsure how to transfer ownership of any property to your trust, speak to your lawyer or the institution that holds the asset, such as your bank or broker. Once assets are owned by the trust, they are protected from probate and under the control of the trust and its trustees.
Do I Need to Fund a Trust?
If you have created a revocable living trust, funding it is a critical step in the process. An unfunded revocable living trust is not worth much more than the paper it’s written on. It is important to take the time to retitle your assets in the name of your trust after you have taken the time to work with your estate planning attorney to create a revocable living trust that fits your particular family situation and financial needs. Failing to fund a trust properly can create several long-term difficulties.
Assets Cannot Be Managed by Your Trustee
The trustee of a revocable living trust has no power whatsoever over any of the settlor’s property that has not been retitled in the name of the trust. If you create a trust without funding it, then become mentally incapacitated, you loved ones may need to establish a court-supervised guardianship or conservatorship to manage the any assets that are not held in the name of the trust.
Assets May Need to Go Through Probate
Any property has not been retitled in the name of your revocable living trust may have to go through probate after your death. This defeats one of the main benefits of creating a revocable living trust—avoiding probate.2
Assets May Not Go to Your Intended Beneficiaries
After the your death, a property that is held outside of your revocable living trust cannot be disposed of as provided in the trust agreement. Instead, assets held outside of the trust may pass by rights of survivorship, depending on the state that you live in. Funding your trust ensures that your assets go where you want them to go.1
- Funding a trust is the process of transferring your assets to the ownership of your trust. How that works will depend on the type of property.
- Assets that are titled in the settlor’s name or in joint names with others are retitled into the name of the settlor’s revocable living trust. For assets that require a beneficiary designation, the revocable living trust can be designated as the primary or secondary beneficiary.
- Once ownership is transferred, the trustee will have control of these assets.
- Properly funding a trust ensures that assets can be controlled by your trustee, go to the correct beneficiary, and do not have to go through probate after your death.
NOTE: When researching Trust Attorney’s one key question to ask is do they assist you in funding your Trust. A lot of Attorney’s have a one and done policy where they will create your Trust but hand it over to you to figure out how to fund it. Here at Legacy Planning Law Group we have a designated Asset Alignment coordinator who helps you to align all the assets you choose to go into your trust with you. Don’t know what assets should go into the Trust and which can or should be left out and how to make sure those left out go to your chosen beneficiary? That is our Asset Alignment coordinators area of expertise. We collect the data for all your assets and make suggestions on which assets should go where and then we assist you in getting those assets into your Trust, or creating beneficiary based solutions or pay on death arrangements. Be aware, not all Attorney’s offer this service and we offer it free with almost all of our Trust plans. Also remember, an unfunded Trust is a useless Trust. From beginning of drafting your Trust to the final fully aligned Trust, we are with you every step of the way! And, in addition, if you are in our Client Care Program, which is also free for you to try for one year with most trusts, we continue to monitor your Trust for any changes in laws, or any changes that may arise for you. We offer continuing education, including family meetings, where we educate your chosen trustee on the duties and responsibilities of taking on that role. We also can explain to your family in layman’s terms the conditions of the Trust you have created if you so desire. You will find this will negate future family squabbles as your loved ones are made aware of your express wishes now, and there can be no question as to what you have decided to do with your Legacy. This way there is no ambiguity as to what you chose and wanted, when the time comes that you may be incapacitated or pass on.
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