Trust Funding: An Essential Step in Estate Planning

Estate planning is a critical process that ensures your assets are protected and distributed according to your wishes after your passing. One of the most effective tools in estate planning is a trust. Here, we discuss the intricacies of trusts, their role in estate planning, and, most importantly, the process of trust funding. 

The expert estate planners at Craig Associates, PC, offer free estate planning seminars to help you get a head start on estate planning and learn how you can secure your financial legacy. Register for an upcoming seminar or call our Asheville office at (828) 258-2888 for an initial case evaluation.

What is a Trust?

A trust permits a third party, known as a trustee, to hold and manage assets for the benefit of one or more beneficiaries. Trust assets can encompass a wide range of items, from cash and real estate to stocks, family heirlooms, businesses, and other investments or valuable possessions.

Trusts generally fall into two categories: living trusts and testamentary trusts. A living trust, or revocable trust, is established and operational during the trustor’s (the person who creates the trust) lifetime. The trustor can change or dissolve the trust at their discretion.

Conversely, a testamentary trust is part of a will and springs into action upon the trustor’s death. This type is an irrevocable trust—once it’s in place, it cannot be amended.

“Craig Associates, PC and his team made the process of establishing a trust seamless! It was the easiest process I have ever experienced. Chris did a fantastic job explaining everything every step of the way to ensure all my questions were answered and I had full understanding. I have previously worked with other estate attorneys for probate with little satisfaction. Chris and his team are by far the best group I have had experience with and highly recommend him. He and his team are prompt at returning calls, emails and texts.”

— 5-star Google review, Asheville, NC
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Benefits of Trusts in Estate Planning

Trusts can be tailored to disperse assets when beneficiaries reach certain ages or life milestones, or even provide continuous support for beneficiaries who may lack financial acumen.

Trusts prove to be especially useful when planning for a disabled family member. They can be structured to maintain the individual’s eligibility for means-tested benefits like Social Security Disability Insurance.

By moving assets into a trust, these properties may be exempt from the grantor’s taxable estate, potentially lowering estate taxes. Trusts can also simplify probate procedures, as trust assets are transferred directly to beneficiaries as per the trust’s conditions, bypassing the court-supervised process.

Trusts also provide privacy, as, unlike a will, they do not become public record, which safeguards against creditors or legal actions targeting your beneficiaries.

Trust Funding 

Trust funding involves the legal transfer of your assets into the trust, thereby aligning them with the stipulations and directives of the trust agreement.

When trust funding is adequate, it becomes an active entity that can fulfill your estate planning objectives. These objectives might include wealth preservation for future generations, contributing to philanthropic endeavors, reducing estate taxes, or securing the financial future of a loved one with special needs.

Without proper trust funding, a trust is unable to execute the grantor’s intentions. Assets that aren’t transferred into the trust typically undergo probate upon the grantor’s death. This not only negates the reason for establishing the trust but may also expose your estate to undesirable outcomes, such as loss of privacy, money, and potential disputes.

Furthermore, trust funding a trust grants the trustee control and ensures your assets are utilized, invested, and distributed in accordance with your desires.

Assets for Trust Funding 

There is a broad spectrum of assets that can be utilized for trust funding:

• Real Estate: This category includes properties such as residential homes, condos, commercial buildings, or vacant land for trust funding. 
• Financial Accounts: Bank accounts, investment portfolios, and retirement funds can all be used for trust funding. 
• Stocks and Bonds: These can be transferred for trust funding by altering the account holder’s name from your personal name to that of the trust, or via a stock power form.
• Life Insurance Policies: Life insurance can be used for trust funding by designating the trust as the policy beneficiary. In the case of an irrevocable life insurance trust, this can assist in reducing estate taxes.
• Personal Property: Items such as artwork, jewelry, collectibles, furniture, and vehicles can be assigned for trust funding via a straightforward assignment form.
• Business Interests: If you have shares in a corporation, membership interests in an LLC, or partnership interests, these can used for trust funding, subject to the entity’s governing documents.

Trust Funding Process

The specifics of the trust funding process can fluctuate based on the nature of the assets involved, but generally, it follows a series of steps:

1. Asset inventory: Begin by compiling a comprehensive inventory of your assets. This should include everything you own, from real estate and financial accounts to personal property and high-value items.
2. Document collection: Assets, like real estate or vehicles, require deeds or titles for transfer. For financial accounts, you’ll need account numbers and other pertinent details. The type of asset dictates the form of property transfer documents needed, such as deeds for real estate or assignment documents for other assets.
3. Ownership Transition: Notify relevant institutions, like banks or insurance companies, about the ownership change. With the right documentation, these institutions will officially recognize the trust as the new asset owner.
4. Beneficiary Designation: For assets like life insurance policies or retirement accounts, you have the option to designate the trust as the beneficiary.
5. Documentation: Maintain a thorough record of all assets transferred into the trust. This will simplify the administration process for your trustees in the future.

In some cases, tax implications may arise when moving assets into trusts, so it’s recommended to consult a professional estate planning attorney or financial advisor when trust funding.

“Chris and Patty were thorough and kind throughout the entire process of establishing our trust, will, and healthcare documents. It’s not a process most people want to spend a lot of time thinking about, but they made sure to explain everything thoroughly and we felt like our family will be well taken care of in any emergency.”

— Andi G., Asheville, NC
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Trust Funding FAQs

1. What is the significance of trust funding in estate planning?

Trust funding ensures that these assets bypass probate upon the grantor’s death, saving time and money. 

2. How does proper trust funding help in tax planning?

Proper trust funding can offer significant tax advantages. Depending on the trust type, one can reduce estate tax liabilities, avoid generation-skipping transfer taxes, and gain income tax benefits.

3. What happens if trust funding is overlooked when estate planning?

Without adequate trust funding, any assets omitted from the trust will generally have to go through probate. 

Learn More About Trust Funding

Don’t let your hard-earned asset fall into the wrong hands or subject your loved ones to the time-consuming and asset-depleting probate process. Call Craig Associates, PC at (828) 258-2888 or contact us using the form below to ensure your estate plan has the right type of trust in place with adequate trust funding. Don’t forget to register for a free estate planning seminar!