Living Trust

Funding A Living Trust

This article gives information on what funding is, why you need to do it, and how to go about it.

Funding a living trust is the transfer of assets into your trust. In order for your assets to stay out of probate, they need to be in the name of your trust. One of the requirements to have a valid trust is that it be funded. When you sign the document to create the trust, the trust is born. But, it doesn’t mean it’s alive. And your trust isn’t truly alive until you put nourishment into it, which happens to be an asset.

An important factor when funding a living trust is to be sure to put the title of your assets into the name of your trust. If the funded assets are not in the name of your trust, your trustee has no control over them. This means that when you pass away, those assets will have to go through probate, which may very well defeat your whole purpose for a living trust. To learn more about funding a trust, and the different types of assets that you will need to transfer, read below:

Jointly-Owned Assets

These are jointly held or community property assets. Inside the document, your attorney may provide extra quit-claim deeds to transfer real estate and notification letters that can be provided to banks and other financial institutions.

Personal Property

This document transfers your personal property from you as an individual to you as a Co-Trustee of your revocable living trust. This is used to transfer personal items that usually do not have an official title of ownership, such as furniture, books, clothing, silverware, china etc.

Separate Property of Husband and/or Wife

If you have any separate property, such as assets obtained before marriage or items received by inheritance, these items can be funded to your joint trust and still remain your separate property. This is completed by filling out separate property assignment forms and the appropriate notification letters. By identifying your “separate property” in the trust, you avoid probate on those assets and allow your trust document to distribute them to the beneficiary of your choice, who may differ from the beneficiaries of the assets you own together.

Assets with Named Beneficiaries

This sort of asset includes annuities, disability insurance, life insurance, IRA’s Keogh plans, 401K plans, pension and profit sharing or employee benefit packages. These assets with named beneficiaries are not subject to probate and do not have to be owned by your revocable living trust. Instead, you may name your Trust as the contingent beneficiary of these assets. If the person who you have named as the beneficiary of these assets should die before you do, naming the trust as your backup beneficiary ensures that these assets are distributed as outlined in the terms of your Trust. However, great care should go into this decision. With large IRA’s you may choose a different distribution than simply transferring ownership to the trust.

To learn more about funding a living trust, or to learn more about which assets you should transfer, you can speak with an estate planning attorney or other professional. Be as informed as possible so that you do not make any mistakes when funding your living trust.