The Importance of Funding Your Trust
Creating a trust can be an important part of your estate plan. But signing the trust document is only part of the process. To carry out your wishes, the assets you intend the trust to hold must be properly transferred to it, and beneficiary designations should be coordinated with your overall plan. When assets are not properly transferred, the trust may remain unfunded or only partially funded, preventing your estate plan from working as intended.
What Is a Trust?
A trust is a legal arrangement in which a trustee holds and manages assets for designated beneficiaries under the terms of a trust document.
One important benefit of a properly funded trust is that trust-owned assets generally can pass to your beneficiaries without going through probate, which can be a stressful, expensive, and time-consuming process. The trust can also provide instructions for managing an inheritance, such as distributing it over time, at specified ages, or in a lump sum.
What Does It Mean to Fund a Trust?
Funding a trust means taking the steps needed to place intended assets under the trust’s ownership. The process depends on the type of asset and how it is currently held.
For example, funding may involve:
Retitling bank or nonretirement investment accounts using the financial institution’s required documents.
Preparing and recording an appropriate deed to transfer real estate.
Assigning certain personal property or business interests, where appropriate.
Common funding assets include bank accounts, brokerage accounts, real estate, and certain closely held investments. The appropriate transfer documents depend on the asset and applicable requirements.
What Happens If a Trust Is Not Properly Funded?
A trust may be unfunded or only partially funded when assets intended for it have not been transferred. Signing the trust document does not, by itself, change the ownership of those assets.
As a result, some assets may not be managed or distributed under the trust’s instructions.
Assets remaining in your individual name without an effective non-probate transfer
arrangement may need to go through probate. Other assets may pass directly to named beneficiaries, but not necessarily according to the distribution terms you established in the trust. Generally, incomplete trust funding can prevent the trust from accomplishing important parts of your estate plan.
How Can You Help Ensure Your Trust Is Properly Funded?
Start by reviewing your assets, how they are titled, and any beneficiary designations. Next, compare that information with your trust and any funding instructions you were provided. For an already existing trust, Jabbour Law can help review the document, asset ownership, and beneficiary designations to identify potential funding gaps and help coordinate your estate plan.
Conclusion
If you are creating a new trust, Jabbour Law can assist with both preparing the trust documents and completing appropriate funding steps. Our goal is to help ensure that your estate plan works as intended, not simply that the documents are signed.
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