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An Introduction to Trust Funding

If you have established a Living Trust, you are probably aware of the many benefits that Living Trusts offer.  On the other hand, you may not be aware of how critically important it is to accurately and completely "fund" your Living Trust for your estate plan to work as designed. If you are like most Living Trust clients you probably have a few questions about trust funding:

 

■ What does it mean to "fund" a Living Trust?  

 

■ What happens if my Living Trust is not funded? 

 

■ How do I go about funding my Living Trust?

 

■ Is funding my Living Trust difficult?

 

■ How do I find help and guidance in funding my Living Trust?
 

 

What does it mean to "fund" a Living Trust?

 

"Funding" a Living Trust involves transferring the assets in your estate from their current ownership and/or beneficiary designations to the name of your Living Trust.  To accomplish this goal, assets are either re-titled to the name of the trust (i.e. the ownership changed) or, in the case of some assets like retirement plans, life insurance, and annuities, the beneficiary designations are changed to name the Living Trust as a beneficiary.  It may be necessary to "assign" a specific type of asset to the trust  using a "Bill of Sale" or "General Assignment."  Each asset must be evaluated individually to determine the right funding approach to coordinate with your estate plan.  An qualified estate planning attorney can assist with these funding decisions.  Top

 

What happens if my Living Trust is not funded?

 

Most clients who establish Living Trusts are interested in avoiding the costly and public estate settlement process commonly known as "probate."  Depending on the area of the country, probate can reduce the total value of an estate by 2% -  3%.  Assets not properly transferred to the trust prior to death and, therefore, left outside the control and protection of the trust may be subject to the public and costly probate process.   On the other hand, assets which have been properly transferred to the Living Trust typically avoid probate.  This benefit can result in substantial savings to the client and their heirs in addition to greater privacy about the administration of the estate beyond the trustmaker's death.  

 

Properly funding a Living Trust may benefit married couples with potential estate tax liabilities.  Trust provisions designed to reduce the impact of estate taxes cannot be fully implemented if the couple's Living Trusts are not funded.  Considering the high cost of estate or "death" taxes, not funding a Living Trust completely and accurately could result in a pricey error to married couples.

 

In designing an estate plan, many individuals often request that their Living Trusts contain provisions for bloodline protection, divorce protection, creditor protection, and remarriage protection.  These goals can only be achieved by trusts that are funded completely and accurately.  Assets left outside the trust may unintentionally forfeit the valuable protections that their trust provisions provide in these areas.  

 

In addition to these protections, many individuals include provisions in their Living Trusts to establish "continuity of control" in the event that they lose the capacity to manage their affairs.  In a catastrophic event (illness or accident) which results in the loss of capacity, a Living Trust can only control those assets which have been properly funded to it.  

 

Those who wish to avoid these problems are wise to ensure that their Living Trusts are completely, and accurately funded and that the trust remains funded  throughout their lifetime.  As you acquire new assets, it will be critically important to ensure that these assets become funded to you Living Trust(s) initially upon purchase or acquisition.  Top

 

How do I go about funding my Living Trust?

Funding a Living Trust involves sending correspondence to the custodians of the assets (e.g. banks, investment companies, stock transfer agents, insurance companies, etc.) instructing the custodian to change ownership and/or beneficiary designation of the asset to the name of the Living Trust.  For some assets, this correspondence can take the form of a simple letter of instruction.  In other cases, the financial custodian may require completion of institutional paperwork or special forms designed specifically for transferring ownership or changing the beneficiary designation to a living trust.  It is not unusual for the custodian to require notarization or a medallion signature guarantee.  

 

Each asset must be transferred on an individual basis with consideration given to the legal requirements for "funding" various asset types.  For example, the process of funding a simple bank account is considerably different from funding stocks, bonds, business interests, retirement plans, even real property.  In fact, most assets require different funding procedures specific to that asset type.  It is wise to seek expert legal counsel to ensure that the trust funding transfer process is accomplished in an accurate and complete manner.  Top

 

Is funding my Living Trust difficult?

 

Most estates are comprised of various types of assets.  These estate assets typically include bank accounts, insurance policies, automobiles, investment accounts, retirement plans, real property, even stocks, bonds, business interests, and annuities.  Funding each of these assets while adhering to various legal guidelines can be a time-consuming and cumbersome process.   It is not unusual for clients who elect to fund their Living Trusts on their own to become overwhelmed or frustrated with the complexities of the trust funding process.  Experience demonstrates that clients who opt to "self fund" their Living Trusts often do not complete the funding or commit unintentional errors which can undermine the effectiveness of their estate plan.

 

Asset types are funded to a Living Trust in different ways.  How is one to know the funding procedures that each asset requires?  Most "lay people" and many attorneys lack the technical expertise required, particularly if the attorney's practice is not devoted to the field of estate planning.  The trust funding process is complicated and contains many pitfalls which should be avoided.  We strongly recommend that clients who have established Living Trusts seek competent legal counseling from an estate planning attorney who provides high quality trust funding and maintenance services.  Top

 

How do I find help and guidance in funding my Living Trust?

 

We recommend that all Living Trust clients seek competent legal counseling from an estate planning attorney who is well versed in trust funding.  While most attorneys can prepare estate planning documents, not all of these attorneys have specific legal expertise in trust funding.  An attorney who limits their practice solely to the area of estate planning is more likely to provide these critical trust funding services to their clients.  Our Attorney Directory helps to identify estate planning attorneys who have established trust funding services for their clients. 

 

Because trust funding is cumbersome even for attorneys with expertise in estate planning, we have developed trust funding products and services to help estate planning practitioners better serve the needs of their clients.  Our trust funding system, FundingPro™, is designed for use by attorneys and helps to automate and organize the trust funding process for their clients.  Attorneys who participate in our Attorney Directory program utilize our trust funding tools to provide the highest quality trust funding services.  We recommend you select an attorney that will not only help to fund your trust today, but will also  provide you with lifetime funding support as your finances evolve.

 

Simply put, our mission is to ensure that all Living Trust clients possess a trust that is funded accurately and completely over the course of their lifetime.  To learn more about estate planning attorneys in your area who offer trust funding services, please refer to our Attorney Directory program.  Top