Funding a Trust: Why It’s Critical

So you’ve decided a living trust is appropriate for you. You’ve met with your attorney, made all the decisions about how you want any money in the trust to be spent, you’ve signed the document and placed it in a safe place.

But you’re not done.

Funding your revocable living trust is just as important as setting up your trust in the first place.

So what happens if you overlook this vital step and acquire new assets over the years that you neglect to transfer into the name of your trust? It’s useless, at least where those omitted assets are concerned.

The benefits of having a trust are only realized if you actually fund your living trust. 

Some people will create a terrific living trust and not fund it, either intentionally or by accident.  If it is intentional, the person likely has a “pour over” Will so that in the event the person owns any assets in their name at the time of their death, their “pour-over” Will, which was prepared as a part of their estate plan, provides that those assets are to be added to the assets of the previously created, but unfunded, living trust, so that they will be distributed as provided in the trust.  However, all such assets will be subject to probate at death before they are added to the trust.

Because any assets which you may own in your own name at the time of your death will be subject to probate at your death, even though they will ultimately be added to the assets held in the living trust, you should carefully and continually review those assets held in your own name (whether now owned or acquired later) to be sure that such ownership is appropriate in light of your desire to avoid probate at death.

A person who has created a living trust may choose not to fund it initially.  They may decide to wait until they are unable to manage their affairs and fund it at that point or to have someone holding their power of attorney fund it. 

The decision to delay funding could also be an outgrowth of wanting to avoid the one time administrative steps that have to be taken in order to fund it (dealing with all the banks that hold your CDs, your brokerage account or individual companies, doing new deeds to your real estate etc.).

The two strongest arguments for using and funding a living trust are if you have out of state real property or a family that argues. 

For out of state real property, a living trust that holds such property will avoid the need to go through that state’s probate procedures and paying a lawyer from that state to handle the probate, usually at considerable cost for just the one asset.  If there is a second marriage or children who do not get along, then a living trust may be best (if your trustee is faithful to your wishes) because it will be harder for one of the other potential beneficiaries to cause trouble if they do not know what the trust contains or says – remember- that it is a private document.

The bottom line is that if you overlook the importance of funding your revocable living trust, your estate plan won’t work as you and your family anticipated. Your trust will be worth only the paper it’s written on.

Let us know if you’d like to find out more about if a trust should be part of your estate plan. Call us today, we’d be happy to help.

Related Information:

What You Need to Know About Living Trusts

Should You Add a Trust to Your Estate Plan?

6 Tips for New Parents