October 8, 2024
Estate Planning
· Living Trusts
The What and Why of Trust Funding: A Simple Guide
Trust funding: it might seem like another confusing legal term, something only super-wealthy families worry about. However, it’s a crucial process for anyone setting up a living trust as part of their estate plan. Without trust funding, your carefully crafted trust could fail to achieve its intended purpose.
Have questions or ready to start planning your family’s legacy? Reach out to us at 208-406-9885. At Snake River Law, we’re here to listen and help you create an estate plan that truly reflects your wishes. Let’s talk and make sure your family’s future is secure.
Table Of Contents:
- What Exactly Is Trust Funding?
- Why Does It Matter?
- The Importance of “Proper” Trust Funding
- Funding Your Trust Properly: Get Expert Guidance
- Conclusion
- Author
What Exactly Is Trust Funding?
Think of it this way: establishing a living trust is like carefully building a secure safe. However, an empty safe doesn’t offer much protection. This is where trust funding comes in.
Trust funding is the process of transferring ownership of your assets from your name directly into the name of the trust you’ve created. This includes assets such as your house, your savings account, and even that vintage record collection. This way, when you pass away or become incapacitated, the successor trustee you’ve chosen can manage and distribute these assets according to your instructions, outside of probate court.
Why Does It Matter?
Avoid Probate: Speed Up Distribution of Assets
Imagine a stack of paperwork, court dates, and legal fees, all while your loved ones are grieving and waiting to receive what you intended for them. That’s probate.
A well-funded living trust allows your beneficiaries to avoid probate altogether, offering them a more private and efficient way to inherit. The assets held within a properly funded living trust are distributed by your chosen trustee. Since these assets are no longer considered part of your individual estate, they generally won’t be subject to lengthy probate processes.
Retain Control, Even After You’re Gone
Think about specific wishes you might have. Maybe you want to make sure a portion of your assets go towards your child’s education or a grandchild’s first home.
Or perhaps you’re worried about how a beneficiary might handle a large inheritance if they are younger children. A trust lets you provide clear instructions for asset management and distribution long after you’re gone, something a simple will can’t quite do.
Protect Your Legacy and Your Loved Ones
Without trust funding, assets meant to be governed by the trust might fall under the jurisdiction of probate court. This can open up potential challenges from disgruntled family members or unforeseen creditors. Having those assets safely tucked into a funded trust can prevent headaches and conflict later on.
The Importance of “Proper” Trust Funding
This is not a “set it and forget it” task. There’s a right way and a not-so-right way to fund your trust.
If you overlook certain steps or don’t fund it completely, the consequences can negate the benefits you’re striving for. Additionally, you will want to make sure you understand the possible tax consequences of your trust. For example, depending on how the trust is set up, the income generated by trust assets could be taxable. You may need to work with a tax advisor to figure out the best way to structure your trust for tax purposes.
Funding It Partially Is Like Not Funding It At All
This is a big one. Putting only a portion of your assets into the trust means that the remaining assets may still be subject to probate, defeating the purpose entirely.
Small Details Can Make a Big Difference
From listing assets on a schedule to changing titles correctly and obtaining proper documentation, precision is key. For instance, failing to update beneficiaries on retirement accounts or life insurance policies to align with your trust can have huge implications. Here are some other important details to consider:
- Transferring real estate: Real property, such as your primary home or investment properties, must be properly transferred to the trust. This typically involves recording a new deed with the county recorder’s office that reflects the trust as the new owner.
- Changing title on accounts: Bank accounts, brokerage accounts, and other financial institutions must be updated to reflect the trust’s ownership. This may involve opening new accounts in the name of the trust and transferring the funds. You will want to be sure to get account statements in the name of the trust once the transfer has occurred.
- Updating beneficiary designations: Life insurance policies, retirement plans, and investment accounts should name the trust as the primary beneficiary or a contingent beneficiary. This ensures that these assets will be distributed according to the terms of your trust agreement. You should receive updated beneficiary designation forms after making this change.
- Transferring motor vehicles: Similar to real estate, the title of your vehicles needs to be updated to reflect the trust’s ownership. This process may vary depending on your state’s Department of Motor Vehicles regulations.
In such a situation, these financial assets would likely go to the listed beneficiary on the account, even if that isn’t what you detailed in your trust document.
Funding Your Trust Properly: Get Expert Guidance
Navigating this process without proper support can be confusing and potentially damaging to your overall legacy plan.An estate planning attorney can provide customized advice based on your specific state laws and your circumstances. Don’t let uncertainty derail your plans for a smooth legacy transfer. Secure expert guidance—your future self and your beneficiaries will thank you.
Conclusion
Trust funding is like that often-overlooked final puzzle piece. Without it, your efforts in creating a trust are almost pointless.
A funded trust can be your greatest tool for ensuring that your assets are handled exactly how you envision, providing security for your loved ones and safeguarding your legacy.
Author
Mark R Petersen is an Idaho estate planning attorney with 20 years of experience creating family estate plans that empower families to succeed. Mark focuses his practice on trust planning helping clients achieve their goals, avoiding probate and unnecessary court fees, and ensuring ease of transition when a loved one passes. See more about Mark here. Call us now at 208-406-9885 to schedule your family legacy planning session.
