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Helping Your Family: The Necessity of Trust Funding

By: Atty. Marcus Collins

Key Takeaways:

  • An unfunded living trust is practically worthless. Even though you have a living trust, it won’t avoid probate or give your successor trustee (such as in the case of your incapacity) control of your assets unless you transfer ownership of the assets (funding) to the trust.
  • A fully funded living trust offers significant benefits. These benefits include avoiding probate, ensuring a smooth transition in case of incapacity, keeping your financial information private, and ensuring your wishes are followed for disability care and asset management.
  • Funding your living trust is an essential step in estate planning. Don’t wait until it’s too late. Take action now and consult with an estate planning attorney to discuss your situation and begin the funding process.

Don’t Leave Your Living Trust Empty: Why Funding Matters

Living trusts are a cornerstone of many estate plans, and that is certainly true in our practice. The revocable living trust is the workhorse of almost all of our clients’ estate plans. They offer a path to avoid probate, a lengthy court process that can delay the distribution of your assets to your loved ones. But here’s the catch: a living trust without assets in it – an “unfunded” trust – won’t do what you hoped it would.

In this article, we’ll discuss funding of living trusts, and why it’s so important.

What is “Funding?”

The term “funding” is somewhat a term of art in trust and estate law. To “fund” a trust, in its simplest meaning, is to transfer the legal title of assets into the trust. Many trusts will have an “initial funding” provision that says something to the effect of, “[I’m] initially funding my trust with $10.”

What is “Fully Funded?”

In our office, we tell our clients repeatedly that their trust needs to be “fully funded.” A fully funded trust is one to which the trust settlor (or trust maker) has, for all of his assets, either transferred the legal title/ownership of the asset to the trust, or has designated his trust as the death beneficiary of the asset upon his death. (To the latter point, depending on the asset, it is very important that the trust be correctly drafted to be able to properly handle being the beneficiary.)

There are many benefits to a fully funded trust—the foremost being that the trust will actually work!

Benefits of a Funded Living Trust

  • Avoid Probate: Many of our clients come to us hoping to avoid probate. While we do not draft trusts just to avoid probate (trusts can do so much better than that), avoiding probate is certainly a benefit to the family after their loved one’s death. When assets are titled in the trust’s name, they avoid the public and time-consuming probate process. This saves your beneficiaries money and emotional stress.
  • Successor Trustee Takes Over Seamlessly: We encourage (really, require) clients to have successor trustees (the people who take over the affairs of the trust—including managing the assets in it) for at least two triggering events: disability and death. If you become incapacitated, your designated successor trustee can manage your assets in the trust according to your wishes. Upon your death, your death trustee winds up your affairs and ensures your assets are distributed according to your wishes. Naming these people in these roles while you’re living eliminates the need for a court to appoint a conservator, further streamlining the process and eliminating cost.
  • Disability Planning is Respected and Effective. In our practice, we help our clients plan for the loss of control they would have to endure, should they ever become unable to manage their own affairs (both financial and medical). As part of that planning, we work with our clients to write very detailed instructions for their own care, how their assets should be managed (including their businesses) and what expenditures would be okay (or not okay) for the trustee to incur. The only way to ensure an asset falls under the purview of such instructions is for the asset to be funded into the trust.
  • Privacy: Probate is a public process, and the details of your estate become part of the court record. A funded living trust keeps your financial information out of probate, and therefore private. When people think of probate court, they often think of the proceedings after death to follow a will’s instructions. However, probate also includes guardianship court—when you are taken before a court to determine whether you are incompetent to manage your own affairs. Even the process of handing the reins over to someone you trust when you can no longer manage your affairs is private—so long as the trust is fully funded, and the other necessary estate portfolio components (like a power of attorney specially written to coordinate with the trust) are in place.

Funding is Essential.

Living trusts offer significant advantages, but many of those are only realized if the trusts are funded. Take charge of your legacy and ensure your wishes are carried out. Schedule a consultation with an estate planning attorney to discuss your specific situation and begin the funding process. By taking this proactive step, you’ll provide your loved ones with peace of mind during a difficult time.

To get started with the Estate Planning Center, make your reservation (click here) at one of our upcoming orientation workshops: the Truth About Estate Planning ™. After attending one of these complimentary workshops, every prospective client is entitled to a complimentary, no-commitment-necessary conversation with one of our attorneys, in which we discuss our process, commitments the firm would make to the client if we worked together, and commitments the client would make to the firm. We look forward to meeting you at a TAEP ™!

The Act of Funding—Stay Tuned!

In future articles, we will discuss what funding assets into a revocable living trust looks like in practice. We will also discuss potential pitfalls surrounding certain assets in funding. Stay tuned, and check back at The Legacy Pulse frequently to learn more on these topics.

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