How Do You Effectively Fund a Trust?
Trusts are an invaluable estate planning tool for those seeking to maintain greater control over their assets, ensure privacy during the transfer of assets, and avoid the probate process.
A critical aspect that Elder Advisors Law Firm often discusses with clients in Wisconsin is the concept of “funding” a trust. Contrary to what the term may imply, funding a trust does not merely involve putting money into it. Instead, it involves the act of actually transferring assets and accounts into the trust as detailed by the trust documents.
An unfunded trust leaves assets vulnerable to probate, undermining the entire purpose of creating a trust. Failing to properly fund a trust leaves the probate court to decide how, when, and to whom the assets will be transferred.
Transferring Assets Into a Trust
To effectively transfer assets into a trust, the grantor (generally the original owner of the assets and individual behind the trust) must go through a few steps, including:
- Retitling assets into the trust
- Transferring deeds
- Assigning ownership of assets or accounts to the trust
- Update beneficiary designations in the name of the trust
This process ensures that the trust, along with its trustee, assumes ownership and control over the assets and accounts. In some cases, the trustee is the grantor.
Transferring assets into a trust does not restrict the use of the assets during the grantor’s lifetime. However, it does require careful consideration for any transfers or sales of assets prior to the administration of the trust. We previously discussed how this works with revocable trusts vs. irrevocable trusts.
Selling or Acquiring Assets in a Funded Trust
The unpredictable nature of life often necessitates changes to your estate plan, including a fully funded trust. In many cases, people decide to sell assets that have already been transferred into a living trust. Such sales must be conducted by the trustee, acting on behalf of the trust, rather than as an individual owner.
For example, selling a home held in a trust should generate sale proceeds for the trust itself. If the trustee sells the home to purchase a new one, it makes most sense to use the sale proceeds for the newly purchased property and to title the new home in the name of the trust.
This approach not only avoids certain taxes and penalties but also ensures a smooth transition of the new property into the trust. Also, any remaining funds from the sale or new assets acquired with those funds should be placed into an account owned by the trust, allowing the estate plan to evolve alongside life’s changes.
Complex Estate Planning Questions Require the Attention of an Experienced Law Firm
At Elder Advisors Law Firm, we take pride in working closely with clients to navigate the process of funding trusts effectively and updating those trusts as necessary. The people of Wisconsin deserve sound and competent legal counsel when establishing and updating their estate plans.
To address ongoing estate planning needs, we offer our TLC Maintenance Program, designed to keep your estate plan updated and effective throughout life’s inevitable changes. For those interested in learning more about our program or who have other estate planning questions, contact Elder Advisors Law today.
