Properly Funding Your Trust
Great job! You have taken the first step in planning for your future by executing a revocable living trust; but you are not finished. A trust must be funded in order to meet the goals for which it was drafted. Funding a trust is the process by which you re-title assets from your name individually (or jointly with a spouse in some cases) to the name of the trust and then continuing to acquire new assets in the name of the trust. Many people do not understand that an unfunded trust cannot accomplish the goals for which it was intended. A trust is created to both plan for your disability and your eventual death. During your lifetime if you become disabled, any assets in your trust can be managed, and used for your benefit, by your named trustee. After your death, any assets contained in your trust are distributed according to the terms of your trust and are not subject to probate.
The following are examples of unintended consequences that are a result of an unfunded or not fully funded trust:
Assets may not go to your intended beneficiary. Your trust contains specific language about who should receive your assets after your death. Assets not properly re-titled in the name of your trust might not go with your trust beneficiaries due to laws governing joint accounts with the right of survivorship, named beneficiary designations, or payable/ transfer on death designations. If these assets are not in your trust then the named beneficiary trumps your trust language.
Assets may go outright to a beneficiary. Your trust may contain language that restricts certain beneficiaries from obtaining access to their entire inheritance at once. Failure to transfer your assets to your trust could result in beneficiaries receiving large sums of money outright with no protection from creditors, spouses and judgments.
Assets outside of your trust cannot be managed by your trustee. One goal of a trust is to ensure that your assets are used and managed for your benefit during your lifetime. In the event you become legally incapacitated and can longer make legal decisions, your trustee can ensure that your assets are managed in the way that you intended. Assets, however, outside of your trust cannot be controlled by your named trustee. In certain circumstances, a court could be forced to name a guardian and conservator to manage your affairs and ensure those assets not in your trust are controlled by an individual the court names.
Assets not in your trust may be subject to probate. Assets that are outside of your trust could be subject to the rules and regulations governing probate. Another goal of a trust is to avoid the costly and time consuming task associated with probating your estate.
Funding your trust after its creation and periodically reviewing your assets to ensure appropriate titling of assets are extremely important but can be very confusing. It is important to consult with an attorney to ensure that your trust is properly funded. Contact an estate planning attorney at Poole Brooke Plumlee PC today to draft and fund a revocable living trust or to review an existing trust to ensure adequate funding.