Trust Funding, by Dina Koch, Of Counsel

So, you’ve taken the step of establishing a Trust to distribute your assets to your beneficiaries according to your specific wishes and terms. You may have done so for a variety of reasons, but likely one of those was to eliminate the need for those who will administer your estate and for your beneficiaries to wade through a lengthy and costly probate process. Well done. However, if you stopped there, you did not finish your job.

If you have a Trust but fail to fund it by transferring your assets into that Trust, you (as well as your executor, trustee and beneficiaries) may be in for some unpleasant surprises. Without funding your Trust, your assets will be subject to probate upon your death. This means that the person named as executor in your Will must follow a process within the court system to be able to distribute your assets to your beneficiaries. If you have not named an executor or do not have a Will, the process can become even more complicated.

Probating an estate involves fees and expenses, and assets subject to probate will incur probate tax. The probate process might take several years before your estate is settled and assets are distributed to your beneficiaries.  In addition, the value of your estate as well as your estate plan no longer remain private once the probate process is initiated. Lastly, not only is the workload, stress and expense greater for your administrators and beneficiaries, but your assets may not be distributed according to the Trust instructions, but rather, by terms of a Will or the laws of intestacy. In other words, not according to plan!

Additionally, if your Trust is unfunded, not only do you fail to avoid probate, but, during your lifetime, should you become incapacitated, your successor trustee has no assets to manage according to the instructions in the Trust.  They have to rely on your power of attorney to help with your financial affairs and perhaps do the work of funding themselves.

Funding a Trust is the process of transferring assets into the Trust. In most cases, this means transferring legal title to these assets from the grantor (yourself) to the trustee (also, yourself in the case of a Revocable Living Trust) on behalf of the Trust document. This may be done by using documents like deeds or by making changes to existing financial accounts so they can be managed within the framework of a Trust agreement. Typically, assets including real estate, investments, bank accounts, other personal property, and even some business interests can be placed in Trust. Other assets, such as life insurance policies and retirement accounts, may not be eligible. In these cases, you may consider changing beneficiary designations to your Trust so proceeds will flow directly into the Trust upon your death.

To avoid costly delays, complications, and unintended consequences, take the time now to transfer your assets into your Trust.  And, in the event that you purchase a new house or open a new bank account, consider taking the title directly in the name of the trust to guarantee that your trust stays funded and that its terms apply to all assets in your profile. If you don’t fund your Trust, all those good intentions and wishes expressed in your Trust document won’t mean a thing.

Once your trust is funded, your work is not quite finished.  Do not make the mistake of funding the Trust, placing your document in a safe place, and never look at it again.  It is important to review your plan every few years, even if nothing major has changed in your life recently, but especially if you have experienced any significant changes.

We know that this process is complex and can be overwhelming.  Please contact us anytime if you need assistance with funding your Trust or with any other questions about your estate plan.

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The Dean Law Firm, PLLC, provides Estate Planning including Wills and Trusts, Small Business Legal Counsel, Conservatorship/Guardianship, and many other services to individuals and businesses in Northern Virginia.