Creating a trust is one of the most effective steps you can take in an estate plan, but simply signing your trust document is not enough. A trust only works as intended when it is properly funded, meaning that your assets are formally transferred into the name of the trust or are otherwise set up to pass to the trust upon your death. Without this crucial step, your trust may not accomplish your goals, and your loved ones could still face the delays and costs of probate.
What Does “Funding a Trust” Mean?
Funding your trust involves changing ownership of your assets from your individual name to the name of your trust. This may include transferring real estate, bank accounts, investments, or other property into the trust. For assets that cannot be directly retitled, such as life insurance policies or retirement accounts, you can typically designate your trust as a beneficiary instead.
Properly funding your trust ensures that your trustee can manage and distribute your assets according to your instructions, both during your lifetime (if you become incapacitated) and after your death.
What Happens If You Don’t Fund Your Trust?
If assets remain in your individual name and are not titled in the name of your trust or designated to pass through beneficiary designations, those assets will generally be subject to probate. Probate is the court-supervised process of settling your estate, which can be time-consuming, expensive, and public.
In other words, even if you’ve created a trust, your family could still have to go through probate if your assets aren’t properly transferred. This can undermine the very purpose of creating a trust in the first place.
Protecting Minor Beneficiaries
One of the most significant advantages of a trust is that it allows you to manage how and when your beneficiaries receive their inheritance. This is especially important if your beneficiaries are minor children. If a minor inherits assets outright, a guardianship may need to be established by the court to manage those assets until the child reaches adulthood.
By contrast, when assets are held in trust, your chosen trustee can manage and distribute those funds according to your directions, for example, for the child’s education, health, and support, without court intervention. This provides both flexibility and protection for your loved ones.
Don’t Forget About Real Property
If you own real estate, ensuring it is properly connected to your trust is essential. Real property should either be deeded into the name of your trust during your lifetime or set up to transfer to the trust upon your passing. This step helps avoid probate and ensures that your property is distributed according to your wishes.
Final Thoughts
Establishing a trust is an excellent way to streamline the transfer of your estate and protect your beneficiaries. But an unfunded trust is like an empty box; it may exist, but it doesn’t hold anything of value.
To make sure your trust works as intended, take the time to fund it properly. An experienced estate planning attorney can help you identify which assets should be transferred, prepare the necessary documents, and ensure that everything aligns with your overall estate plan.
Contact Vaughn Law today to discuss setting up a new trust or reviewing your existing plan to make sure it’s properly funded and structured to meet your goals. We’re here to help you protect what matters most and give you peace of mind for the future.