How to Fund a Trust?

A trust can play an important part in your estate planning. However, many people are unsure of the process that it takes and unclear exactly how to fund a trust. These are important estate planning basics that can help you make the right financial decisions for you and your family. In the end, a trust can eliminate the lengthy probate process and can keep more of your hard-earned assets with your loved ones, instead of being taxed by the Internal Revenue Service.

Understanding Trusts

There are many different types of trusts, including revocable and irrevocable trusts. However, at the most basic level, a trust is a financial tool that allows a person to establish a legal arrangement in which their assets will flow to the people they identify as their beneficiaries when the time comes – to be administered by a third party of their choosing.

Some of the parties that are involved in a trust creation or execution may include the following:

• The settlor – The person that creates the trust is the settlor (or grantor).
• The beneficiaries – The people (or person) that are determined to benefit from the assets in the trust are called the beneficiaries.
• The trustee – The trustee is the third party chosen to distribute the assets included in the trust.

There are many different types of trusts, and each will be appropriate for different purposes and life circumstances. Consider visiting with the experienced estate planning attorneys at Ibekwe Law, PLLC to learn more about which types of trust (or trusts) might be right for your specific needs.

Different Types of Trusts

Not all trusts are established the same way, and all have different purposes. Consider for example the following different types of trusts:

• Marital Trusts – This type of trust transfers assets between spouses without tax consequences following one spouse’s death.
• Charitable Trusts – If a person is interested in passing on assets or payments over a period of time after their death, they may be interested in establishing a charitable trust.
• Special Needs Trusts – If a person has a child or family member with special needs, they may want to consider a special needs trust, which would allow them to transfer assets without hindering their beneficiary’s ability to obtain governmental benefits.
• Generation-skipping trusts – If a person wants to transfer assets to their grandchildren, they can do so through this trust without paying estate taxes twice (first to the children, and then again to the grandchildren).
• Insurance Trusts – This specific type of irrevocable trust is the designation of a primary beneficiary of the decedent’s life insurance policy. This type of trust allows a beneficiary to receive the life insurance benefits in increments throughout their lifetime following the policyholder’s death.
• Spendthrift Trust – This trust allows a person to provide for their beneficiaries in such a way that they will not squander the totality of the assets with imprudent or improper spending habits.

Visiting with an experienced estate planning attorney can help you understand which of these types of trusts (or others that exist) may be right for you.

How To Fund a Trust

The assets that a person includes in a trust can come in a variety of forms.

Bank Accounts and Other Accounts

The majority of bank accounts and other kinds of financial accounts can be transferred directly to a trust, but it is important to check with the bank or financial institution in question to ensure you proceed according to its policies. There are certain circumstances where these transfers are not allowed.

Properties Without Deeds or Titles

While real estate and many major purchases, such as vehicles, come with deeds and titles attached, the majority of personal property likely does not. Examples include:

• The furnishings in your home
• Your clothing
• Any collections you have, including art, jewelry, and/or watch collections
• Any items of particular value you own

Addressing your personal possessions in your trust can be done in general terms, such as home furnishings and clothing, but if the possession is of significant value, such as a piece of art, a piece of jewelry, or a family heirloom of particular sentimental value, it is important to address the item specifically (to help ensure that it goes to whomever you want to have it and to help decrease the risk of confusion or ambiguity regarding the matter).

Real Estate

If a person makes the decision to include real estate in their trust, it generally requires that they sign a deed transferring the interest in the real estate property in question and then to record this deed with the appropriate state entity. Different counties employ different rules and regulations, so it is important to specifically check with the County Recorder in the county in which you will be recording the deed.

Maintaining Your Trust

While it is important to establish a trust accurately, there may be life circumstances that change your estate planning needs or goals. Specifically, any assets that a person accumulates after the initial creation or funding of a trust will need to be addressed. Depending on the type of trust created, it may be possible to include these additional assets in the trust. In some cases, this is not possible, however. It is important to consider visiting with an experienced estate planning attorney to ensure that assets are included comprehensively within an estate plan. The failure to include or address property from an estate within a legal estate planning document will mean that the property will need to go through the state’s probate process.