Funding is the process of transferring your assets to your living trust. Funding may also include changing the designations on certain assets like life insurance or retirement accounts to name your living trust as beneficiary.
Funding is an important element to any trust based estate plan. Remember that one of the benefits of a living trust based plan is that your estate can be settled without probate. However, in order to use a living trust to avoid probate, the trust must be funded with your assets.
It’s best to think of a living trust as an open top box. A fully funded trust is a box that contains all of your property. At your death, since your property is inside of the box, you own nothing that would require probate.
During your lifetime, you are the trustee of the property inside of the box. Your trust contains instructions that during your lifetime you have full control and access to the property inside of the box. You can move your property in and out of trust as you desire. And you can even amend or revoke your trust at any time without affecting your right to control your property.
After you are gone or if you become disabled, your trust identifies a successor trustee to take over the management of the trust property and administration of the trust. The trustee is charged with following the instructions you’ve left in your trust document. So the trustee can write a check out of the bank account held in trust, but she can only do so for purposes authorized by the trust, such as paying your bills.
At your death, your trust contains instructions as to whom, when and how your property is transferred. Your successor trustee is responsible for making sure your trust property is transferred in accordance with your wishes. Since the trust contains the transfer instructions for the property inside of the trust, there’s no need for the probate court to get involved.
Now, suppose that you moved all of your property into trust, except for one bank account. The bank account is not jointly owned with rights of survivorship, nor is it “payable on death.” The account is owned by you. After you die, since you are no longer able to sign authorization to change ownership of the account, the bank will require the signature of someone authorized by the probate court to administer your estate (known as an executor or administrator). By not having the bank account funded into your trust, it will be necessary to open a probate proceeding to be able to transfer that asset.
In the following posts, we cover how to fund the following assets into trust:
- Bank Accounts
- Personal Property
- Real Estate (Part I and Part II)
- Investment Accounts
If you have additional suggestions for instructions on other types of assets. Please leave your comment below.