Trust Funding: Setting Your Trustee Up for Success

A revocable living trust can serve as a valuable estate planning tool to help ensure that your finances remain well managed if you become incapacitated (unable to manage your affairs while you are alive) and to provide future financial security for your loved ones upon your passing. However, merely signing the trust agreement does not complete the estate planning process; to work correctly, the trust must be funded, which involves trust funding.

What Is Trust Funding?

Trust funding is the process of transferring ownership of your accounts and property to the trust during your lifetime. For some accounts or pieces of property, it also includes designating the trust as a beneficiary so that the trust will receive ownership upon your passing rather than during your lifetime. Effective funding involves several steps.

Trust Funding as a First Step for Trust Administration

An entirely funded trust not only helps the trustmaker and their loved ones avoid the dreaded probate process but can also smooth the transition from you as trustee to your appointed successor trustee (the person you have selected to step in to manage your trust when you are incapacitated or have passed away). Proper trust funding is crucial for this smooth transition.

• Accessing your accounts and property will be less complicated. If you have adequately funded your trust, your successor trustee should have little or no trouble stepping in to manage the accounts and property if you are unable to do so. This can be incredibly important if you are incapacitated and action regarding your finances must be taken right away. Your successor trustee may need to provide third parties with documentation evidencing their authority to act on the trust’s behalf. We can easily prepare this documentation for you without court involvement.

• Creating the inventory for your trustee. One of the first things your successor trustee must provide to your named beneficiaries at your passing is a comprehensive inventory of all the trust’s accounts and property. Suppose the ownership and beneficiary designation confirmations you gathered during the funding process are periodically reviewed and kept up to date. In that case, you will leave behind a helpful preliminary list for your trustee to use in creating the inventory, which can save the successor trustee time and frustration in the beginning stages of administration.

• Confidence that your plan will be carried out. The primary reason you created a trust was likely to control what will happen to your accounts and property if you become incapacitated and after you have passed away. The instructions you leave in your trust apply to only those accounts and property owned by the trust (transferred to the trust either during your life or by beneficiary designation at your death). If the trust does not own an account or piece of property, the instructions in the trust agreement will not control what happens to it. Therefore, effective trust funding is necessary for your plan’s success.

A Fully Funded Trust Helps Avoid Probate

If your trust does not own the item and is not jointly owned or has no beneficiary designation other than the trust, it will likely have to go through the probate process. During probate, the account or property will, at best, be transferred through your pour-over will to your successor trustee as the trust’s new trustee. A pour-over will should be prepared with all trust-based estate plans. It states that all accounts and property in your probate estate are to be distributed to the trustee of your trust. Pour-over wills do not contain the specific details included in the trust (such as who will receive an inheritance from you and when and how they will receive it), so they do allow for some privacy. Although the instructions in your trust will eventually control what happens to any forgotten accounts or property, your loved ones will still have to go through the time-consuming and costly probate process. Trust funding helps avoid these issues, preventing assets from going through probate.

When Your Trust Will Not Control the Outcome

If a beneficiary other than your trust has been named on an account or piece of property, it does not matter what your trust agreement says. That account or piece of property will go to whomever is listed on the beneficiary designation. The same is true with jointly owned property. In most cases, when one co-owner of an account or piece of property dies, the surviving co-owner(s) automatically receive the deceased owner’s interest in the account or property upon their death. You must know what your current beneficiary designations say and that they match your estate planning goals. Trust funding is essential to align your assets with these goals.

Working Together Now for Future Success

You obviously care deeply for your loved ones—you would not have taken the time to create an estate plan otherwise. The last step you need to take is to fund your trust. Book a Discovery Call if you have questions about this process. We are available to assist you in any way you need. If you would like, we are also available to handle the trust funding for you. Let’s partner to make sure that your hard work will set you and your loved ones up for a prosperous future by ensuring trust funding is appropriately managed.