What Exactly Does Funding a Trust Mean?

Most people have heard of trusts and have a general grasp of the benefits they offer, but few people truly understand how trusts operate. For example, people may wonder what exactly does funding a trust mean. While some people think trusts only help the wealthy, they can be useful for many people even if they do not have substantial assets. If you want to learn more about trusts and whether a trust may be appropriate to help you meet your estate planning goals, it is wise to talk to an experienced estate planning attorney.

What Exactly Does Funding a Trust Mean?

People often create trusts to protect property from creditors, mitigate tax consequences, and avoid battles over an estate. If a trust is not funded, however, it is effectively useless.

Essentially, funding a trust is the process of transferring the ownership of assets from an individual to a trust. In other words, trusts are legal entities that people create by signing trust documents, but if they do not subsequently fund the trust, it will have no assets.

To fund a trust, a person must first determine what property they want to transfer to the trust. Such assets may include bank accounts, real property, and stock holdings. If a person wants to place property in a trust, they must change the title of the property from their name to the trust’s name.

Not all assets should be transferred to trusts, however. For example, people should not transfer retirement accounts to trusts, as doing so is considered a withdrawal and has significant tax consequences. People can change their beneficiary designations on life insurance policies and retirement accounts so that the proceeds and benefits from such accounts go into the trust after their death, however.

Once people transfer assets to a trust, they no longer have the right to control the asset. Instead, the individual named as the trustee will manage all of the property in the trust. If the trust is revocable, the assets could be transferred from the trust back to the original owner or to another individual if necessary. If the trust is irrevocable, though, any assets transferred to the trust must remain in the trust.

Property can also be transferred to a trust through a pour over provision in a will. Such provisions dictate that certain assets that are not already in the trust become trust property following a person’s death. The assets will most likely have to go through probate but will then be distributed per the terms of the trust.

Talk to a Seasoned Estate Planning Attorney

Many people lack knowledge about how trusts work and when they are appropriate and, therefore, fail to consider whether a trust may aid them in protecting their assets. If you have questions about trusts, including what exactly does funding a trust mean, or have any other inquiries about estate planning in general, it would benefit you to talk to a seasoned estate planning attorney. Call Gregorek & Associates at 425-284-3450 or fill out our contact form and we will be in touch to schedule a meeting.