If you’ve drawn up a trust agreement with your attorney, you have plans in place for your long-term goals. Still, many individuals make a mistake that sends their assets and loved ones right into the court system. They fail to fund their trust. Let’s look at the top 10 ways to begin funding your trust and achieve your goals.
What Does it Mean to Fund Your Trust?
Funding a trust is simply the process of transferring assets from your name into your trust. You should also change most beneficiary designations to your trust.
Fund Your Trust by:
- Changing the title of the asset from your individual name (or joint names if you’re married) to the name of your trust. For example, from John Smith to John Smith, Trustee of the John Smith Living Trust dated December 1, 2022.
- Assigning your interest in an asset without a title (such as artwork, jewelry, collectibles, or antiques) to your trust.
- Changing the primary or contingent beneficiary of the asset to your trust.
Which Assets Fund a Trust?
In general, you will probably want to fund 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
On the other hand, you will probably not want to fund the following assets into your trust:
- IRAs and other tax-deferred retirement accounts: change only the beneficiary name
- Incentive stock options
- Interests in professional corporations
- Foreign assets: In some countries, funding an asset into a U.S.-based trust causes adverse tax consequences. In other countries, trusts are invalid.
- UTMA and UGMA accounts: Your minor grandchild is the owner, not you as the custodian. Instead, name a successor custodian
It’s essential to work closely with your attorney to determine what should go in and stay out of your trust.. If you acquire new assets, ask your attorney how to title the account or who to designate as the beneficiary.
What Are the Benefits of Funding Your Trust?
These days, individuals often use a trust as the foundation of their estate plan. Preparing an estate plan with only a will or joint ownership is not enough to avoid public, costly, and time-consuming court processes. A trust can prepare you and your loved ones for a future without court interference when properly prepared.
Funding your trust makes it possible to obtain the best results from your trust-based estate plan:
Incapacitation Plans
A trust can keep you from ending up under a court-ordered and managed guardianship (due to incapacity). With a trust, you choose who will care for you if you become incapacitated.
With a properly funded trust, no one can file a valid petition for conservatorship or guardianship over you and allow a judge to take control of your assets. Instead, your incapacity or settlement trustee will have direct access to your trust assets without the need for obtaining a court order. Your named trustee will also have powers to manage your care and may also manage, invest, sell and reinvest your trust assets without court intervention.
Your Estate Avoids Probate
After your death, your estate will skip probate. Instead, your settlement trustee will take control of your trust assets, and your final wishes will remain a private family matter instead of being publicized in the local probate court records.
Protecting Your Estate Assets from Creditors
After you pass away, a trust can help your estate avoid selling your home to pay Medicaid Recovery, keep inheritances out of the public eye where others may add false claims, and discourage predatory creditors.
Trusts are easier to update as your wishes and circumstances change instead of doing things piecemeal through joint ownership, payable on death or transfer on death accounts, or individual beneficiary designations.
Paying for Long-Term Care
Trusts may help you pay for long-term care by making you eligible for Medicaid coverage. A trust may also help you or a special needs or disabled loved one qualify for other government benefits, such as SSI or SSD.
What Happens to Assets Left Out of a Trust?
An unfunded trust isn’t worth the paper it’s written on. If you don’t update titles and beneficiary designations to the name of the trust, you lose the benefits of opening a trust. Without funding, assets and loved ones end up in probate court, costing your estate money, time, and stress.
Ensure all assets are in your trust at the time of your death by making a pour-over will with your attorney. A pour-over will allows any assets left out of the trust at the time of your death to immediately transfer into the trust at the time of your death.
Go ahead and fund your trust today. Change titles and beneficiary designations now so that if you become mentally incompetent or die, your assets and loved ones will stay safe. Then let your pour-over will do the rest.
We Can Help
Our experienced Hopler, Wilms, and Hanna estate planning attorneys are available to answer your questions about funding your trust and look forward to working with you on all of your estate planning needs. We can collaborate with you to discover assets not yet under management that you can consolidate, such as prior employer 401ks, scattered IRAs or investment accounts, or individual stocks or savings bonds. And we can help you find the assets to fund your trust, such as annuities or large cash balances in bank accounts or CDs
At Hopler, Wilms, and Hanna, we understand the importance of funding your trust so that your estate plan may accomplish your long-term goals. Contact us today and find out how we can help you and your loved ones stay prepared for the future.