One of the most versatile estate planning tools is a Revocable Living Trust. It’s often the best option if you are interested in avoiding the public, costly, and time-consuming process of probate, or wish to protect your assets beyond the next generation. They are especially recommended for people with blended families, parents who have kids with special needs, or individuals who own property in multiple states or countries.
Many of our clients choose to have us set up a Living Trust, but that’s only half of the process. An unfunded Trust is really just a stack of paper. The best fortress in the world can’t protect anything outside its walls. The process of ensuring your Trust is properly funded can seem daunting, but it’s not intellectually challenging, and it’s critically important. So let’s answer a few of the most common questions about funding at Trust.
What does funding mean?
Funding means transferring assets from your name into the name of your Trust. You as an individual can hold property, own title to investment accounts, and possess other assets. As a living entity, so can your Trust. You should also change most beneficiary designations to your Trust.
What are the benefits of funding my trust?
Funding your trust makes it possible to access all the protections and controls that are part of your estate plan:
- It allows your incapacity trustee (instead of a conservatorship or guardianship judge) will take control of your Trust assets if you become mentally or physically unable to manage them.
- Your final wishes will remain a private family matter instead of being publicized in the local probate court records.
- If your wishes or circumstances change, you only need to amend the Trust, and it will go into effect to cover all your assets.
- The person you have chosen as successor trustee will take control of your Trust assets after your death without needing court approval.
- Your incapacity or settlement trustee will be able to access, manage, invest, sell, and reinvest your Trust assets without court intervention.
What happens if I don’t fund my trust?
A conscientious lawyer will provide you with a Pour Over Will to catch anything that isn’t funded to your Trust, and assign it to your Trust after your death. However, this will not avoid probate. Since avoiding probate is one of the main reasons many people choose to set up a revocable living trust, relying on the Pour Over Will somewhat defeats the purpose. More importantly, anything that exists outside the Trust isn’t protected by the Trust’s provisions on incapacity. If you suffer an accident that leaves you incapacitated, but still alive, you may have to go through the court process of being assigned a conservatorship or guardianship. Your Fiduciary Agent will need court approval to manage assets outside your Trust. But everything inside the Trust can be easily, and privately, managed by your Incapacity Trustee. So it’s certainly in your best interest to fund as much as possible into your Trust.
Should I put everything into my trust?
For most assets, the answer is “yes.”
With rare exception, we recommend transferring the following assets into your trust:
- Real estate – homes, rental properties, vacant land and timeshares
- Bank and credit union accounts – checking, savings, CDs
- Safe deposit boxes
- Investment accounts – brokerage, agency, custody
- Notes payable to you
- Life insurance – if you don’t have an irrevocable life insurance trust
- Business interests
- Intellectual property
- Oil and gas interests
- Personal effects – artwork, jewelry, collectibles, antiques
There are, however, certain types of assets that either cannot be held by a Trust entity, or that don’t make sense from a day-to-day management perspective. You will probably not want to fund the following assets into your trust:
- IRAs and other tax-deferred retirement accounts
- Incentive stock options and Section 1244 stock
- Interests in professional corporations
- Foreign assets – in some countries funding an asset into a U.S.-based trust causes adverse tax consequences, while in other countries trusts aren’t recognized
- UTMA and UGMA accounts – your minor grandchild is the owner, not you as the custodian
- Cars, trucks, boats, motorcycles, and scooters
You can use Designated Beneficiary, Payable Upon Death, or Assignment of Title designations to transfer other assets after your death. It’s important to work closely with your attorney to determine what should go into your trust and what should stay out. Also, before purchasing new assets, consult with your attorney to find out how to title the account or deed or who to designate as the beneficiary.
Is funding something I should do myself?
Many clients find that the process of funding their Trust is a good exercise in determining whether their money is being held the way that works best for their situation. It doesn’t require any specialized knowledge or training, and we provide all our Trust clients with extensive Funding Instructions to ensure that each type of asset is properly transferred.
However, it is a time-consuming process that is dependent on the particular requirements of each institution. Those who choose not to do it themselves have plenty of good options for hiring professionals. We can work with your financial advisor to ensure all accounts are funded properly. Our firm can do the funding at our paralegal rate. There are also professional funding services.
Trust funding take-aways
A Living Trust offers cost and time savings, plus added control over assets, but it can’t control what it doesn’t hold. Funding your Trust is. We are available to answer your questions about funding your trust and look forward to working with you and your advisors on all of your estate planning needs.