What Does Funding My Living Trust Mean and How Do I Do That?
In order to understand what it means to fund a living trust, it helps to review what a living trust is and what advantages a living trust offers for individuals planning their estate.
A living trust, also referred to as a revocable living trust or an inter vivos trust, is a legal document used in the estate planning process. The maker or grantor creates the trust to hold title to assets and to manage those assets during the maker’s lifetime. A living trust specifies the beneficiaries who will receive the property held by the trust upon the death of the maker. The maker can also specify how the trust will be managed in the event the maker becomes disabled or incapacitated.
A living trust bypasses the probate process because beneficiaries inherit the property in the trust directly from the trust rather than the maker. Therefore, property in a living trust is not required to pass through probate to transfer title of the property into the name of the heir.
Advantages of using a living trust include:
- Avoids probate
- Reduce or eliminate estate and income taxes
- Provides privacy because a living trust is not a matter of public record (a probate estate is a matter of public record)
- Offers more flexibility than a will
- Is effective during the lifetime of the maker rather than upon death
- Is revocable – you can transfer assets back out of the trust into your name
- Reduces the risk of challenges by heirs
- Avoids appointing a conservator for minors
- You can serve as the trustee for the living trust
- Offers a greater level of control compared to other types of trusts
How Do I Fund My Living Trust?
A revocable living trust is a much better choice for avoiding probate than using joint accounts. You name your beneficiaries in the living trust just as you do with your will; however, the trust transfers ownership to your heirs upon your death. If you do not want your heirs to receive the property immediately upon your death (i.e. minors), you can also direct that the property be held in another trust for the benefit of the beneficiary and direct how that trust is to be managed.
The first step in creating a living trust is to decide what to include in your trust agreement. You must decide who will serve as the trustee (you may serve as your own trustee), name the beneficiaries of the trust, direct how the trust will manage property, and direct how property will be distributed upon your death. Once you have established the terms and elements of your living trust, you must execute the trust in accordance with your state laws for the trust to be valid.
However, drafting and signing your living trust is only the first step. Your living trust is not complete until you fund the trust.
Funding your trust is simply the process of transferring your assets to the trust. You must sign and transfer the titles to real estate and other property to the trust so that the trust’s name is placed on the title as the “owner” of the property. If you are adding your life insurance or other financial accounts to your living trust, you must change the beneficiary on the accounts to the trust in order for the benefits to be paid to the trust upon your death.
Funding your living trust is critical to obtaining the benefits of having a living trust. Until you transfer assets to the trust, the trust cannot control or manage those assets. If you die before transferring assets to your living trust, those assets will be subject to the probate process and they will be distributed according to the terms in your will.
Can My Trust Buy And Sell Assets?
If you name yourself as the trustee of your living trust, you are in control of the assets within the trust. Another advantage of a revocable living trust is the fact that the trust can buy and sell assets in the trust’s name. You can also continue to buy and sell assets in your name because you can transfer assets in and out of the living trust as you decide to do so. However, since the purpose of a living trust is to avoid probate, it is better to leave your assets in the trust.
Do I Still Need A Will?
Yes, you still need a will even though you have a revocable living trust. If you have property that is not included in your living trust, you need a will to direct what should happen to that property after your death. Furthermore, if you forgot to include an asset in your living trust, you need a will to avoid that asset being subject to the intestate laws in your state.