Funding a Trust: Why It’s Essential, Its Process and Consequences
Funding your trust is a task that you are required to complete after you have created a trust, more preferably a revocable living trust. Just creating a trust doesn’t change the ownership status of your assets and thus doesn’t guarantee the protection of your assets from creditors or from results of unexpected events (your death or incapacity) like probate or conservatorship.
It’s only after you transfer your assets to your trust through retitling your assets in the name of the trust, or by assigning your interests in the assets (without a title) to your trust, etc., that you ensure their unavailability to creditors or securing it from other unnecessary hurdles after any unanticipated event.
Why It’s Essential to Fund Your Trust
A revocable living trust doesn’t bring you any benefits. It’s only after having it funded with your assets that it brings all the benefits of a trust fund. The prime benefit is your assets being free from paying huge taxes.
Other ways funding a trust helps are:
- Your trustee will have full control over your assets. Usually, the trust maker becomes the trustee himself (herself) for a revocable living trust.
- You retain the authority of managing, investing, selling, and re-investing your trust assets without needing to get permission from the court.
- It avoids the probate of your assets in case you incapacitate or even die, and your assets are easily passed over to your designated beneficiary.
How to Fund a Trust
Funding of the trust is accomplished in several different ways:
- By transferring the title of your assets, such as cars, trucks, motorcycles, boats, airplanes, etc., from your name to the name of the trust.
- By assigning your interest in untitled assets, such as artwork, jewelry, furniture, tools, collectibles or antiques, to your trust by transferring with an assignment of ownership document, which must be signed and dated.
- By re-titling your interests in partnerships and LLCs, and shares in a corporation in the name of your trust.
Consequences of Not Funding Your Trust
Failing to fund your trust exposes your assets to being probated in a court where the ‘wrong’ people will be fighting against your ‘Will’ with a purpose to acquire your assets or a part of them. Having been subject to probate, you and/or your family will have to face the following consequences:
- It will take the courts a minimum of 12 to 16 months to work through the probate process and until then, you’ll have no, or limited access, to your property.
- It can cost you up to 4% of the total value of your assets for attorney fees, along with other charges like court costs.
- All your assets and the names and addresses of the beneficiaries will be set forth for public display, inviting your creditors and other opportunists to gather your personal information.
- In case of your death, the court may appoint someone to look after the property until your children reach 18.
- It’s a scary thought to let your property be handled by an unknown person. Also, the high fees paid to them will further reduce the amount of money your children will receive.
Funding your trust isn’t a difficult task but it takes some time. Living trusts are usually structured so that you meet with no or little resistance when transferring your assets.
For more information or a professional help, contact a trusted estate planning attorney near you.