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Whenever an attorney creates a Revocable Living Trust for a client, the trust needs to be funded. “What does it mean to fund a trust?” is a common question that our attorney at the Skillern Law Firm gets from clients. It is a very important step in the estate planning process. To see what a Revocable Living Trust can do for you, read our previous blog post about the types of trusts and their advantages. A trust, if funded correctly, will allow its creator(s) to avoid the probate process. An unfunded or partially funded trust does not allow your assets to avoid probate, because only the assets owned by the trust at your death or payable to the trust at your death avoid the probate process.
There are a few common misconceptions about the trust funding process.
Myth #1 – Since you formed a trust and have a Trust Agreement, the trust is complete and there is nothing else that needs to be done.
When you sign or form a trust with an estate planning attorney, signing to document is only the first step in the trust-creating process. The attorney, or the client, needs to make sure ALL of the assets held by the trust-creators (or “trustors”) are put in the trust’ss name, or has the trust as the listed beneficiary of the account. Otherwise, the Trust Agreement is an expensive pile of paper that will not help the creator’s avoid probate. The attorney at the Skillern Law Firm funds all of the trusts she helps create, taking this important step out of the client’s hands.
Myth # 2 – When the trust was created, there was a list of all the property on an Exhibit or Schedule that’s attached to my trust, so that transferred my assets to the trust… right?
Many trusts have an exhibit or schedule of property. This is a helpful document that helps a successor trustee in ascertaining what property they should be managing and accounting for. Updating this exhibit or schedule as the “big-ticket” items change is important so that the information on the exhibit is generally up to date. However, merely putting a description of the property on a schedule or property addendum does not legally transfer the ownership of the property into the trust. That needs to be done outside of these exhibits/schedules, most likely by property deeds and beneficiary designations.
How do you fund a trust?
To fund a trust, the attorney or client needs to file the property deeds with the county its located in, and put the trust as the beneficiary on all accounts. To fund business interest, you will need to assign closely held business interests to your trust. Like all things in life, there can be tax consequences and benefits to each course of action. You should always seek tax advice prior to making a transfer of property, because once transfers are completed, there is often no undo button for tax purposes. Whenever our attorney create a trust for a client, she makes sure she funds the trust at creation, but it is up to the client to keep the trust correctly funded after signing.
What are the benefits of a fully funded trust?
The biggest benefit of a correctly and fully funded trust is that it allows your beneficiaries to avoid probate. One more important benefit of a fully funded trust is that it allows for easier management of your property in the event of your incapacity. A truse can also can save on administration costs upon your death or incapacity, since your successor trustee and beneficiaries will not have to spend as much time and money locating your property.
Having a revocable trust in your estate planning portfolio is important for those who want to avoid probate and keep their estate administration as easy as possible. Funding your revocable trust is an absolute necessity if you want the benefits of avoiding probate and having management of your property in the event of your incapacity. Funding your revocable trust is a necessity that should be completed and worked on along with the creation of your trust. Call the Skillern Law Firm today to get your estate planning done today!