After spending a great deal of time determining whether you need a trust, figuring out what kind of trust you need and creating the document itself, you may think that, once you execute it, you are done. You can put it away and not have to worry about it again.
Unfortunately, if you do that, you will have wasted all that time, money and effort. In order for a trust to work for you and your beneficiaries as intended, you need to “fund” it. This post explores what that means.
What does it mean to “fund” a trust?
The primary function of a trust is to hold your assets in order to remove them from your taxable estate and to otherwise protect them so that they can eventually go to your beneficiaries. Simply having the executed document does not accomplish this goal. You will need to transfer the assets you want to receive this protection and those you want to give to your beneficiaries, which is what it means to fund your trust.
Once titled or transferred into the trust, the assets become subject to the provisions you outlined in it when you created your trust. For instance, if you want to control when and how your beneficiaries receive distributions from the trust, your successor trustee can step in if you become incapacitated or if you want a seamless transition from you receiving the benefit of the assets during your life to your beneficiaries receiving the benefit of the assets upon your death.
What happens if you don’t fund your trust?
Failing to fund your trust would most likely result in the following:
- Your assets will go through probate.
- Your assets may not get to your beneficiaries.
- Your property may be subject to taxes.
- Your property will be vulnerable to creditors and others.
As you can see, you and your beneficiaries have a lot to lose if you don’t transfer your assets into the trust. Of course, you don’t have to put everything in your trust if you don’t want to, but it might be a good idea to give careful consideration to doing so. The fewer assets you retain as an individual, the less the value of your estate will be upon your death, which can help your heirs and beneficiaries receive the maximum benefit possible from it.
Most likely, you have numerous questions regarding what assets to put into your trust, along with how to do it. When you create your estate plan and your trust, you should work with an attorney to make sure to properly fund your trust and to be certain that it provides the protections you intend for it.