We’ve talked about the many types of trusts and how trusts avoid probate, but there’s one key caveat: your trust has to be fully funded in order to be exempt from the probate process. As a quick refresher, probate is a court-mandated process of sifting through the details and assets of an estate and legally distributing those assets.
If your estate goes through probate, it can cost beneficiaries time, money, and privacy (as the proceedings become public record). In order to avoid this process, we want to clarify what “funding” a trust while you’re still alive looks like and how to properly do it.
What does “funding” a trust mean?
Right off the bat, we hear from many clients who misunderstand what funding actually means when it comes to trust. It might sound like it just means paying cash into the trust, but it’s a lot more nuanced than that.
Funding a trust requires you to fulfill the details of the trust as detailed in your estate documents.
This means any assets you intend to be owned, managed, and distributed by the trust must be transferred into the trust in order to actually fund the trust. A trust is not considered fully funded until all assets are transferred into it as detailed in the trust documents.
Assigning a trustee
Your trust will be managed by a trustee who becomes a legal owner of those assets once they are transferred into the trust. This person or entity will be responsible for managing assets and, eventually, handling the proper distribution of those assets as detailed in your estate.
The trustee will become a legal owner of all assets placed in the trust, but you don’t have to worry about them coming to your home and claiming those assets. You still keep all assets and your relationship to those assets will generally be unchanged while you’re still alive.
This is an important role, so you should be careful during the process of assigning a trustee to manage your hard work.
Transferring assets
Once you’ve established your trust and the trustee who will oversee the estate, you will need to make plans to transfer all assets detailed in the trust. There will be some differences between the two main types of trusts as a revocable trust can have assets taken in and out while an irrevocable trust will need assets placed and kept throughout the estate.
The type of asset will dictate how the funding process works. If you’re transferring real estate, you’ll need a deed to transfer the property into the trust (this could lead to certain taxes and fees). This process will be the most involved asset transfer in your trust, and it’s imperative to get it right as failure to properly transfer an asset could leave it exposed to probate court. When you are transferring other assets with titles denoting ownership, you will need to get a new title detailing your trust as the new owner of those assets.
Outside of that, you’ll want to obtain documentation of the transfer of any other assets that don’t have titles. Your documentation should explain what the asset is, how much of the asset is being transferred, and who the trustee is.
Financial assets may have built-in beneficiary designations which can be designated as the trust. It’s important to consider all bank accounts, investments, and business interests in your trust. As long as you execute the transfer within the parameters of those accounts, you likely won’t have to worry about them being exposed to probate as those provisions will supersede the estate and probate process.
Work with your attorney for a thorough funding review
These are just a few examples of the many assets you may consider transferring into your trust.
The best way to protect yourself from issues in the future is to work with the right estate planning attorney who can go over all the necessary documentation with you.
At Solan, Park & Robello, we care for your future. We know trusts and estate law, and our extensive experience will help us guide your trust through the process. Contact us today and get your plan taken care of.