Funding a Living Trust

Maurice Johnson
June 16, 2009 — 1,153 views  
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Often owners of living trusts fail to adequately fund it. Funding means transferring assets from your own name to the name your trust is in. You can transfer bonds, stocks, bank accounts, life insurance policies, real estate, mutual funds, certificates of deposit, vehicles and more.

For instance, if you wanted to transfer your mutual fund account to your living trust, you have to ask your mutual fund company for the correct form and change the name of the account owner. For example, the account used to say "owner - John and Jill Smith" but now it should say something like, "owner - Smith Family Trust, John and Jill Smith as Trustee".

However, it is true that funding a living trust can be awkward. There are many forms to fill in and sometimes you will be charged a fee for changing the title/ownership of the property. If the asset is complicated; for example a business, an attorney should draft the transfer documents and attorneys are not cheap.

It can also be more difficult to use certain assets after you have transferred them to the trust. If you are trying to sign a check at the supermarket explaining that you are paying out of your trust fund... well, that will confuse them! It would be best in this case to have a small personal checking account to take care of such matters as day to day checks, grocery shopping etc.

Also, if you want to take out a mortgage on a property that is held in trust, it can be challenging to find a bank that will work with you, but it can be done.

Some businesses which are poorly suited to be in a living trust. A real estate development company would find it difficult to deal with title companies, lenders etc if it were operating as a trust.

However, personally owned out-of-state real estate is a good candidate for a living trust because your estate can avoid out-of-state probate on the property.

You need to think about your personal circumstances before placing assets in your living trust. With real estate, if you are planning to re-mortgage or sell the property soon, it is probably not a good idea to place it in the trust but if you are planning to hang on to it for life, it might be a good idea to put it in the living trust. Your attorney can offer you the best advice about what to put in the trust now, what to put it there at a later date and what to omit altogether.

A living trust offers lots of flexibility as far as what you choose to fund it with and when. This flexibility is one of the advantages of a living trust. If you are healthy and young, you might prefer to keep your assets in your own name. If you plan to move house in six months, there is not much point putting your house in the trust. Perhaps, when you are a bit older and more settled, you find the cost/benefit analysis has shifted in favor of putting it into the trust.

Some people get living trusts and never put anything into it. They only had the trust drafted in case they wanted to use it at some point in the future. If they experience health problems with age, they might then decide to transfer some assets across, so their family can manage those assets should they be incapable of managing them themselves. In many states, however, a living trust will not be valid unless it contains something, even if it is just $10, before the death of the creditor. Only assets transferred while the creditor was alive will escape probate.

A living trust is very flexible and offers many options. There are plenty of reasons why someone might choose not to fund a living trust at all or not to fund it immediately. However, if you plan to use a living trust to avoid probate, you need to fund it. Sadly, a lot of people assume their living trust will "work" without understanding why and how it must be funded. They either do not transfer assets properly or forget to transfer them.

This problem might not be discovered until after their death when it is too late to do anything about it, in which case the estate will have to go through probate. Depending on the contents of the will, if there is a separate will, the assets might never end up in the living trust and the distribution might not go as you had wished.

In summary: if you have a living trust, be sure to discuss the issue of funding the living trust with your estate planning attorney.

Read more about funding a living trust at Funding a Living Trust. Other estate planning topics are discussed at Estate Planning Hub.

About the Author

Maurice is an estate planning attorney and runs two estate planning websites: http://www.free-living-trust-information.com and http://www.estate-planning-hub.com

Maurice Johnson