Trust Funding: What Is It and Why Do I Need To Do It?

This blog article responds to questions we frequently receive about trust funding. The failure to properly fund a trust often has adverse consequences that are preventable. At Naimish & Lewis, we assist our clients with trust funding as part of our full-service approach to each client’s estate plan. 

I signed my Trust, now what?

Signing your Revocable Living Trust isn’t the final step in establishing a properly functioning trust. After you create and sign your trust, you must then “fund” your trust with your assets. “Funding” your trust is the process of transferring all of your assets from you to your trust by either changing title to the trustee or assigning the asset to the trustee.   

When properly funded, your trust can give you added control over your assets that a will or joint ownership cannot provide. For example, a Revocable Living Trust, when properly prepared and funded, can help to avoid probate, avoid disclosure of information to the public, including information such as assets and beneficiaries, and can help you provide for your family more expediently.

However, many people make the mistake of procrastinating when it comes to funding their trust. If they die before the trust is funded, court intervention may be required to set things right, defeating many of the reasons for establishing their trust in the first place.

What if I don’t fund my trust?

Your trust controls only the assets that you place within the trust. If you established your Revocable Living Trust and neglect to fund your trust, then you may be required to deal with Probate Court. The trust you worked so hard on to establish exactly how your assets should be handled may be perfect, but without changing titles and beneficiary designations, court intervention will be necessary to establish trust control over your assets. This can defeat the purpose of having a trust in order to avoid probate or avoid disclosure of your private information.

Who is responsible for funding my trust?

Your attorney should prepare an assignment for property that doesn’t have a title, and a “pour-over will” along with your trust to act as a safety net. After you die, the will can designate your trust to control any assets that weren’t accounted for previously. Depending on the asset, or the total value of assets, probate may still be required, but your trust will be able to maintain control over the distribution.

Typically, your attorney will assist you in some aspects of funding your trust. Many attorneys provide assistance in transferring your real estate but will typically provide instructions on dealing with other assets to save on legal fees. The purpose of the trust is to control your assets, and you are ultimately responsible for making sure that the assets you want in your trust have been properly placed within your trust. You should review your assets with your attorney and discuss who will be responsible for transferring each asset. Your attorney can provide you instructions and procedures for assets you decide to transfer on your own.

What assets should be in my trust and how difficult are they to transfer?

Preferably, all of your assets go into your trust so everything is under the control of one document, all neat and tidy. However, there are a few assets that you may want to leave out or that you are not able to place in your trust. Typical assets that you want to transfer to your trust include your real property, bank accounts, investments, and business interests. Some assets such as individual retirement accounts must be held by an individual but the trust can be designated as a beneficiary.  

In most cases, transferring assets into your trust should be fairly easy, though it will likely be time consuming. Nowadays, living trusts are more and more common, and many institutions are ready and able to assist you in transferring your assets. Some transfers may even be handled simply through phone calls and letter requests. For some assets, an institution such as a bank may require proof that you have an existing trust. Your attorney should prepare what is called a “Certification of Trust” for you to provide to any institution that requires proof. A Certification of Trust is a short version of your trust verifying the existence of the trust as well as some basic information such as the trustees and their powers while keeping some information such as beneficiary designations private.

If you are not sure if you should transfer an asset into your trust, you should ask your estate planning attorney to help you determine its proper placement. You also should consult with your tax advisor or attorney to determine what, if any, tax implications might be involved in transferring assets to your trust. Each trust funding plan must be determined based on the specific assets and intended beneficiaries. [Disclaimer]

Once you have completed your trust funding, don’t forget about it in the future! In many cases, when you acquire new assets, you can take title as trustee of your trust immediately. If not, make sure to transfer title to your trust right away. If you need help funding your trust, contact your estate planning attorney for instructions.

Our estate planning team at Naimish & Lewis can advise you on estate planning and trusts and estates administration. To schedule an initial consultation with an attorney at our firm for a new estate plan or to review an existing estate plan, please contact us.