Setting up a trust can be a wise estate planning decision for people looking to avoid probate and certain complications of transferring assets after death. However, a trust could ultimately cause more problems than it solves if it is not set up properly.
For instance, if you set up a trust but do not fund it, trustees have no control over the assets you might have intended to transfer but failed to. In these situations, the assets would likely still go through probate, even if you have a pour-over will in place. As such, it can be crucial that you fund your trusts properly.
How to fund a trust
Funding a trust means transferring asset ownership to the trust. As this FindLaw article notes, there are a few ways to do this.
- If you have a title, you will transfer the title to the trust. You can do this for assets like cars, homes and bank accounts. Once you transfer the title, the trust owns the property, not you.
- If there is no title for property, you will transfer property rights to the trustee.
- If you are a beneficiary to an asset, you will need to change the name of the beneficiary from your name to the trustee’s name.
Transferring assets to a trust is not necessarily difficult, but it does take time and require you to fill out paperwork. This can make it just tedious enough for people to put off this step after creating a trust.
This can be a costly mistake, though, as failing to actually fund a trust means that your property will still go through probate. Further, any tax benefits that may have been realized with the trust could also be forfeited if you do not fund a trust, so be sure to discuss funding the trust when you create it.
A trust can be a valuable element of an estate plan as long as it is appropriate for your needs and properly set up. Should you have any questions regarding trusts or any aspect of your estate plan, you can consult an experienced attorney.