A trust can be a powerful planning tool, but you must fund it

On Behalf of | Nov 24, 2020 | Estate Planning

A number of analogies might reasonably lead off this blog post.

A swimming pool generally readied for use but with no water in it, for example. A letter with no stamp. A room only half painted. Just about any imagery that underscores a task or endeavor only half completed.

That job-half-done focus underscores the subject matter of what follows below.

Namely, that is this: a trust left unfunded.

Readers interested in estate planning topics are routinely informed about the key role that trusts can play in a given estate plan.

Trusts can promote many goals in a Delaware estate plan. They are notably flexible planning tools that can work in close tandem with an executed will. They enhance privacy. They enable creators to bypass the often costly, complex and time-consuming probate process.

A trust can also mitigate or eliminate tax exactions. It can shield assets from creditors, ensure asset distribution to heirs and loved ones across generations and spell out inheritance conditions. A trust can safeguard the future of a family member with special needs, provide for charitable giving, inform a lasting family legacy and more.

But only if it’s funded.

Funding an estate planning trust: key points to note

Imagine the shock and dismay down the road for heirs and beneficiaries who find out that a trust created to benefit them flatly lacks any assets to promote that goal.

It seems an obvious point that a trust must be duly funded with assets necessary to accomplish its stated goals, doesn’t it?

And yet stories from the estate planning realm recurrently emerge that spotlight instances of trusts carefully crafted but lacking any assets to carry out their objectives.

The bottom line often spotlighted in such scenarios is this: Assets not lawfully transferred to a living trust established during a creator’s lifetime often end up being dealt with in probate. They can be diluted through tax exactions, creditors’ demands and other value-diminishing outcomes.

Steps to take to properly fund a trust

There is no one-size-fits-all directive to follow for funding a trust to promote a creator’s goals. Close attention must be paid to trust aims and the linked assets for securing their objectives. An in-depth online overview of essentials tied to proper trust funding stresses that, “How to fund a trust varies depending upon the nature of the property.” Here are some examples of things to consider pursuant to making a trust the owner or beneficiary of assets:

  • Real estate transfer – deed required and due attention paid to state law dictates re witnesses, recording, any transfer taxes owed and so forth
  • Personal property transfer – deed and titling could be a matter needing to be resolved
  • Untitled property – document such as assignment of ownership might be required
  • Bank/savings accounts – input from financial institution re process and requirements likely needed

Obviously, many other types of assets might be involved in a given case, ranging from business interests and intellectual property to life insurance benefits, accounts receivable and more.

A trust can be the ideal estate planning tool for passing along assets to third parties and future generations of loved ones, but only when properly funded to do so.

Questions or concerns on trust creation and funding might reasonably be directed to an established estate planning legal team.