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What is Funding a Living Trust and Why is it Important?

You have finally created your estate plan and signed your living trust. In order for your living trust to carry out your estate plans, your living trust now needs to be”funded” with your assets. “Trust funding” is the process of changing the formal title and ownership of your assets to the name of your trust. All property that is in the name of your trust at the time of your death can then be distributed in accordance with the terms of your trust. Whenever we prepare estate documents for clients, they are often confused about this last step, having the misconception that once their trust is signed, they’ve taken all proper measures to make certain their estate avoids California probate.

The Importance of Funding a Living Trust

When explaining what trust funding is, I use the analogy of comparing a trust to a corporation. Everyone understands that a corporation may have a bank account in the corporate name, own a vehicle, and may even own real estate. A trust works exactly the same way. A bank account can be held under the name of the trust, and title to vehicles and real estate can also be in the name of the trust. Although some assets don’t have a formal legal title, such as household goods and furniture, any asset that has a designation of formal ownership should to be changed to show ownership in the trust name. This is called funding a living trust.

Often trusts are only funded with a few assets. Sometimes this is done on purpose. There are some assets that have direct beneficiary options, such as a life insurance policy or an account with a beneficiary designation. It may not be necessary for the distribution of a certain asset to be controlled by the trust. Each different type of asset, whether property, retirement plan, life insurance, or bank accounts, should be individually assessed to decide whether the asset should or should not be controlled by the terms of the trust.

The problem arises when someone creates their trust and then fails to properly fund it, or, keep the trust funded. An example would be when property in the name of the trust is later sold. When a new asset or property is acquired after the trust was created, putting the name of the trust as title holder to this new asset can be overlooked. This scenario happens often and is probably the number one reason estate plans fail to work the way they were intended.

A living trust is one of easiest vehicles for effective estate planning and, when prepared by a legal document assistant, is a very low-cost way to make plans for one’s estate after death. Unfortunately there’s no such thing as permanent, one-time trust funding, and funding a living trust is an ongoing process throughout a person’s lifetime. Once your trust has been set up, it is important to always be cognizant of any major change to your assets such as closing or opening bank accounts or buying or selling real property or other major assets. It is not only important to fund your trust immediately after it was signed, but it is equally important to consider the need to move later acquired assets into your trust as your assets change.

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Contact A People’s Choice for Low-Cost Estate Planning

If you have concerns about funding a living trust and need help properly transferring your assets to your living trust, or if you want to create a living trust or other estate documents, A People’s Choice can help you. It does not have to cost thousands of dollars to make your estate plan nor does it require you to hire an expensive attorney.

By |2018-01-18T15:47:47+00:00February 2nd, 2015|Estate Planning|0 Comments

About the Author:

Sandra M. McCarthy, founder of A People’s Choice Inc., has worked exclusively in the legal field since 1976. She served as the 2004-2005 President of CALDA (California Association of Legal Document Assistants). She obtained a Paralegal Certificate from the University of California, Santa Barbara. During her career in the legal field, she has worked as a freelance paralegal, law office manager and paralegal studies teacher, and has co-authored numerous legal publications and written hundreds of self-help legal articles. As a registered Legal Document Assistant, Sandy is dedicated to providing affordable, low-cost, self-help document preparation services for California consumers in all 58 counties.

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