Important Tips: Why and How to Fund a Trust

Protected Piggy Bank Under Glass: How to Fund a TrustTrusts are a valuable tool in estate planning. A properly-crafted trust can save substantially on taxes, avoid having your estate probated and supervised by a court after your death, and make sure that your hard-earned assets are used in the way you intend during your life and afterwards. However, creating a trust is only the beginning of the process. To be of any use at all, a trust has to be funded. A trust without funding is like a bank account with a $0.00 balance. It is of no value to you or anyone else. So you need to know how to fund a trust.

Types of Trusts

There are many different types of trusts, including testamentary trusts, special needs trusts, Domestic Asset Protection Trusts, and living trusts. Trusts are set up by formal legal documents drafted by experienced estate planning attorneys, to ensure that all tax issues are properly addressed and that the trust fully accomplishes the wishes of the person creating the trust, referred to as the grantor.

After a trust is established, it needs to be funded before it becomes operational. In some cases, like testamentary trusts, the trust will be funded on the death of the grantor with assets of his or her estate. In other cases, like living trusts, assets must be individually placed into the trust to fund it. If you create a living trust, it is your responsibility to fund it, following the guidance of your estate planning attorney.

Funding Your Living Trust — Make It a Priority

Living trusts are commonly used as part of an estate plan. Most living trusts are revocable and can be changed during the grantor’s lifetime. When you place assets into a revocable living trust, the assets are continue to remain fully within your control unless you become incapacitated or pass away. In either of those situations, the assets will be administered by a trustee according to the terms of the trust you created.

Sometimes, people make the mistake of creating a living trust, but they put off funding it. A living trust without funding has no value or purpose. It will not help your estate avoid probate, save on estate taxes, or ensure that your assets are managed and distributed according to your wishes if you become incapacitated or after your death. Funding your living trust should be a priority that you address as soon as you have established it.

Putting assets into your living trust does take some effort and time. The reward comes at the end of the process, after you have funded the trust. Then you can rest comfortably knowing that you have taken care of both yourself, in the event of incapacity, and your loved ones, in the event of your death.

Frankly, when you work with the attorneys at BRMM, we take pride in ensuring that we work together to fund your trust. Think of your trust as your left pocket: All you have to do is move your assets in your name from your right pocket to your left pocket. You do not lose control of your assets, you just re-title the asset in the name of the trustee. Since you (or you and your spouse) are the trustee of your living trust, you retain full control of the asset.

How Assets Are Placed in a Living Trust

Before you even begin to put assets into the trust, your estate planning attorney will very carefully review all your assets and work with you to determine which assets should go into the trust, and which should be addressed separately. This step is crucial, because it enables you to maximize the tax savings for your estate.

There are many different types of assets that can be used to fund a living trust. Which assets are suitable for your living trust will depend on your individual circumstances. There are two class of assets: tangible and intangible. Tangible assets are those you could carry, put into a moving van, and drive away. Tangible assets are usually transferred into the trust with a simple one page assignment. Intangible assets are those you need to show a piece of paper to prove ownership. Assets that can be used to fund a living trust include:

  • Real estate, including residential, business, and investment property
  • Bank accounts
  • Investment accounts and securities
  • Life insurance policies
  • Valuable personal property, such as jewelry and fine art

There may be special rules in regard to those assets that are considered tax qualified assets, such as retirement accounts like 401(k) plans and IRAs. If these assets are actually transferred to a trust, it becomes a taxable event. Therefore, if they are to be directed to the trust, it is accomplished by a beneficiary designation. In some cases, it may be much more tax efficient to name two different individuals as the primary and contingent beneficiary. You and your attorney will decide the best course for your situation.

There are two basic ways that assets are put into a living trust:

  • Re-titling the asset to include the trust
  • Revising designated beneficiaries to include the trust

The type of asset determines which method is appropriate. For example, for real estate and bank accounts, the title must be changed. For insurance policies and retirement accounts, the beneficiaries need to be changed. For all of the changes, your estate planning attorney will advise you on the appropriate method and process.

In some cases, such as real estate, your attorney will create the documents that re-title the property. In other cases, such as bank accounts, you can make the changes following precise instructions from your attorney. The whole process may sound daunting, but when you work with skilled estate planning legal counsel, it becomes very straightforward.

Our Skilled BRMM Attorneys Are Here to Guide You

Our firm has been helping clients throughout southeastern Michigan since 1970. When it comes to making or funding your living trust and other estate planning needs, our attorneys have the experience and comprehensive understanding necessary to help you develop the best plan for the future. Call us at 248.641.7070 or complete our online form to set up a free initial consultation.