What Does It Mean to Fund a Living Trust?
Living trusts can be very convenient. They protect your assets after your death and can avoid probate. When you cannot manage your affairs, a living trust provides a means to handle things the way you want. A living trust is a legal entity that can act on your behalf after your death. It can own and manage your property. Because it isn’t a living entity but a distinct legal entity, it keeps working when you can’t anymore. Take note, though: You need to do things for the trust to be effective. One of the most important is funding the trust.
What is Funding a Trust?
In short, “funding” a trust transfers ownership of assets to the trust. While an attorney can help guide you through the process, it’s your responsibility in the end. After moving ownership from your legal name into the name of the trust, it will hold your assets under its terms. You can transfer ownership of several assets to your trust as you fund it—for example, checking and savings accounts, mortgages, stocks, bonds, and even real estate. There are more financial assets you can transfer ownership of as well. If you should die without a trust or have assets not included in it, the probate process is unavoidable. This is one of the most common issues after forming a living trust. Failing to fund your trust limits how useful it is.
Is There Anything I Shouldn’t Place in My Trust?
Yes. Some assets are better left to your attorney to transfer real property. It would be best if you didn’t transfer things such as IRA accounts, cars, heirlooms, or 401k plans to your trust. While you could transfer ownership of a life insurance policy to your trust, you may not want to. You could assign your trust as the policy’s beneficiary, but creditors can use these funds. In truth, you could transfer vehicles to your trust, but there are big reasons not to.
The biggest is that you don’t need to do it. Vehicle transfers usually occur after death without probate. In most cases, all you need is the title, death certificate, and will. Many insurance providers also stipulate that they won’t cover a vehicle owned by a trust. Why? One reason could be that the trust can be party to a lawsuit. Vehicles are often the catalyst for lawsuits due to accidents. Therefore, a trust involved in an accident is very vulnerable. In addition, the litigation process can allow people to learn very private details of your trust.
In Conclusion
A living trust can be an essential part of smoothing the after-death process. They help ensure your assets go where they need to, and where you want them to go. It would help if you worked with a good estate planning lawyer to determine the best options for your trust. It’s your responsibility to fund your trust before you pass, so you should be well informed. At Dowd Law Firm, we’d be happy to walk you through the process. Call for a consultation today and tell us your situation and needs, and we’ll help you every step of the way.