Working with an attorney to draft a trust agreement for estate planning purposes is an important step. But just getting the document drafted and signed is not enough. For any trust to be effective, you must complete the process of funding your trust as soon as you can. But what exactly is funding?
A common way to think about funding is to imagine your trust as an empty bucket. For that bucket to be useful, it needs to be filled with something. In the case of a trust, that something is your money and property. Funding, therefore, is the process of moving your money and property into the bucket. Technically, the funding process involves retitling your accounts and property in the name of your trust. There are two ways to move money and property into a trust: (1) by transferring ownership of your accounts and property from you as an individual to yourself as the trustee of your trust and (2) by completing beneficiary designations, naming the trust as the beneficiary, on other types of property such as life insurance and, in some cases, retirement accounts.
When you own property in the name of your trust, if you become incapacitated (unable to make your own decisions or manage your affairs) or die, that bucket can be quickly and easily handed to a successor trustee who has the right and responsibility to use the accounts and property for your and your trust’s beneficiaries. And because it is a trust, no court proceeding (called probate) will be required for the transition of responsibility to a successor trustee or oversight of the trust’s management. It is important to remember that only fully funded living trusts allow your loved ones to avoid probate.
Please keep in mind that properly funding your trust will often involve working with financial institutions to change account ownership to the trust’s name; in the case of real property, it may require you to sign a new deed and record it with the county recorder. There are several different ways to ensure that your trust owns your accounts and property. Below are some of the most important and common types of property that you should ensure are properly funded to your trust:
- Checking and Savings (Cash) Accounts
- Real Estate and Real Property Interests
- Investment Accounts
- Personal Effects
- Retirement Plans
- Life Insurance and Annuities
Other less common, but important assets to consider could include:
- mortgages, loans, promissory notes, or other receivables
- business interests such as partnerships, LLCs, sole proprietorships, or small business stock
- royalties from books and art such as music and recorded performances
- trademarks and copyrights
- digital assets such as income streams from online content (blogs, social media channels, etc.)
- college savings plans (529 plans)
- health savings accounts
Each of these types of property has special characteristics you should consider when transferring ownership to a trust. Although it may seem complicated, that is why we are here. We can help you think through the many issues associated with transferring property into your trust so you can feel confident that when it comes time for a successor trustee to take over your trust’s management, everything is taken care of. Call us today if you have specific questions about how to properly coordinate ownership of your property with your trust.
