What good is a fancy sports car with an empty gas tank? Very little! The same principle is true for your trust – a trust without assets does not serve the primary purpose for which most people create a trust, which is to avoid probate. In order to make your trust work for you, it is important to make sure that your trust has assets. The process of ensuring that your living trust has assets is called funding. One way to fund assets is to re-title your assets from your name into your living trust.
But don’t mistakenly assume that funding only applies to tangible assets. When funding your trust, consider what happens to your intangible assets – things such as company interests, stock certificates, brokerage accounts, retirement plans, and life insurance policies. Some of these assets can be re-titled into the trust, while others may need to be directed through another mechanism (such as listing the trust as a beneficiary of some sort). By funding the trust with these assets, the process of transferring these assets to your family upon death or allowing your successor trustee to administer your assets (if you are incapacitated) is much easier. Note: To determine how you want to fund your trust, you should seek personalized legal advice from a licensed attorney who is knowledgeable about estate planning.
Since a trust isn’t a person in the normal sense, it’s easy to forget about the trust. But neglecting a trust can harbor many negative consequences. Settling your estate through probate court is a headache compared to utilizing a trust, and in some jurisdictions, it can be significantly more expensive. Furthermore, some of the benefits of a trust may be negated if the trust isn’t properly funded.
For parents with minor children, an unfunded trust can create even more problems. If both parents die and a trust is unfunded, a court could have to appoint a Conservator of the Estate for your minor children. This can be expensive, and the court may select someone you don’t like or trust.
The best practice is to regularly fund and update the terms of your trust. For property that doesn’t go directly into the trust (retirement accounts, life insurance policies), you want to make sure that the beneficiary designation is compatible with your trust plans.