When it comes to estate planning, creating a trust is only half the battle.
The next essential step is funding your trust to guarantee you protect your assets and your wishes are honored. But what exactly is trust funding, and why is it so important?
In this month’s blog, we’ll break down the basics of trust funding, why it matters, and share some real life examples to show its impact. Let’s get started!
What is Trust Funding?
Trust funding is the process of moving your assets (like your house or bank accounts) from your name into your trust’s name. This step is crucial because without it, your trust is an empty shell with no control over your property. It’s very important to make sure that your trust is properly funded. The trust manages the assets according to its terms if you pass away or become incapacitated.
If you’ve already set up your trust, double check that it’s funded. Otherwise, your assets may have to go through probate. Probate can take a long time, cost a lot, and is a public process. Many people set up a trust to avoid it.
Trust Funding: The Neglected Step in Estate Planning
Trust funding is often the neglected step in estate planning. All estate planners have stories about carefully crafted trusts that were never funded. This left the trust with no assets to control. In these cases, the trust doesn’t actually own anything and we’re unable to carry out the plan that took time, money, and effort to put in place.
After meeting with your estate planner, you may feel ready to cross the project off your list. But if you haven’t taken the time to transfer your assets, you’re not done yet. Trust funding gets overlooked because it can seem overwhelming or tedious. But it’s a vital part of the process to make sure your careful planning isn’t wasted.
For example, picture Sarah (a fictional character) who’s a single mom of two kids. She met with her estate planning attorney a couple of years ago to create a trust. Sarah wanted to make sure that if something happened to her, her kids would have what they need. She took her time to outline her wishes in the trust documents, making sure everything was clear. However, Sarah never transferred her house into the trust or updated her bank accounts to list the trust as a beneficiary.
When Sarah unexpectedly passed away, her well intentioned plan fell apart. Because her assets weren’t in the trust, they had to go through probate. This delayed the access to funds and increasing costs for her family. This example shows why funding a trust is just as critical as creating one.
If your assets aren’t transferred the right way, your trust can’t fulfill its intended purpose.
How to Fund Your Trust: One Step at a Time
If you’re working with an estate planner, they’ve likely provided you with a list of instructions to make sure your assets are in the trust. They’ve done that by either transferring ownership now or by using proper beneficiary designations. While the process may feel overwhelming, it’s best to take it one step at a time.
Here’s a simple approach:
Start with Your House
First, look at your home. Is it currently in the trust, or will it transfer upon your death? If you’ve already transferred your home into the trust, notify your homeowners insurance agent. You’ll want to be sure to give them a copy of your Certificate of Trust to update their records.
Work Through Your List, One Account at a Time
Next, review from your attorney and work through each account or asset systematically. Contact your bank or financial institution to request the necessary paperwork to either change ownership to the trust or update the beneficiaries.
Seek Help If You Need It
If you have questions or run into any roadblocks, reach out to your estate planning attorney. They can guide you through the process and ensure everything is done correctly.
Real-Life Example: The Smooth Transition
John and Rachel (fictional characters) created a revocable living trust and wanted to make sure their home and investment accounts were included. With their attorney’s guidance, they started by transferring the deed for their house to list the trust as payable-on-death (POD) beneficiary. Each week, they tackled one more asset. From their investment accounts, to personal items like artwork and collectibles.
Because they followed their estate planner’s instructions step-by-step, their assets were all properly transferred by the end of the month. John and Rachel can rest easy knowing their trust is fully funded and will work exactly as they intended.
Why Trust Funding Matters
Here are a few reasons why funding your trust is so important:
Avoiding Probate
Any assets not transferred into the trust may have to go through probate, which can be time-consuming and expensive.
Ensuring Privacy
Probate is a public process, which means your assets and their distribution will be available for anyone to see. A fully funded trust keeps things private.
Aligning with Your Estate Plan
An unfunded trust means state law may determine the distribution of your assets. This doesn’t take into account your personal wishes — which could result in unintended beneficiaries.
Why Trust Funding Gets Overlooked
Trust funding often gets overlooked because it involves a bit more legwork after the initial trust creation. Some common reason include:
- Lack of Awareness: People assume that creating a trust alone is enough.
- Complicated Process: Retitling property and updating beneficiaries can feel overwhelming.
- Time Constraints: Busy schedules can make it hard to find time for these extra steps.
But skipping this step can lead to the exact issues you sought to avoid by setting up a trust in the first place. That’s why it’s vital to work with an experienced estate planning attorney who will make sure you fund your trust properly.
Once you transfer assets to your trust, it’s a good idea to review everything with your attorney to confirm that every asset is correctly titled. This extra step can prevent headaches and make sure your estate plan is seamless.
Schroeder Larsen Law Can Help You Today!
Creating a trust is a great first step, but don’t forget to take the next step of actually funding it! Without this crucial piece, your trust won’t be able to fulfill its purpose. And that’s protecting your assets and carrying out your wishes! At Schroeder Larsen Law, we’re here to help you with every part of the process. From setting up your trust, to making sure it’s fully funded — we’ve got you covered. If you’re not sure how to transfer your assets, or have questions along the way — reach out to us. We’re happy to guide you through the details so you are confident your estate plan is ready and can do its job.
Click the link below to get in touch with us today!