Why Is Funding a Trust Important?
Trusts are a valuable estate planning tool that can accomplish important goals and objectives. Establishing a trust requires executing a legal document that defines the terms of the trust, as well as transferring assets into the trust, commonly referred to as funding a trust. Just as preparing a trust document requires assistance from a knowledgeable estate planning lawyer, help from an attorney is crucial for the process of funding a trust.
When Do You Fund a Trust?
Creating a trust as part of your estate plan is a two-step process: First, you execute a trust document that establishes the terms of the trust. The second step involves funding the trust.
You should always get help from a lawyer to determine whether a trust is right for your estate plan, and have the lawyer draw up the trust document to accomplish your goals. Trusts are governed by complex federal and state laws and should never be set up without assistance from legal counsel.
After you execute the trust document, you must fund the trust for it to be effective and operational. Funding does not happen automatically when you sign the trust document. It is an active process that involves moving property and assets into the trust.
There are two different ways of funding a trust: The first is by transferring property and assets into the trust during your lifetime. A trust created and funded during your life is referred to as an inter vivos trust or living trust, which can be revocable or irrevocable. The second option is to create a testamentary trust, which is funded by a property transfer on your death, usually by provisions in your last will and testament.
There are significant differences between a living trust and testamentary trust. Which type is suitable for your estate plan depends on several factors that your attorney explains in the process of creating your estate plan. One of the most important differences is that property transferred into a trust on the death of the grantor or settlor (person creating the trust) in a last will and testament is subject to probate. In contrast, property transferred into a trust during the grantor’s lifetime avoids the probate process.
Funding a Trust
To fund a revocable or irrevocable living trust, you transfer assets and property into the trust. Getting assistance from your estate planning lawyer in accomplishing these transfers is extremely important.
In some cases, such as real estate, transfer requires changing the title to the asset. Ownership of bank and financial accounts must also be transferred to the trust. A financial institution may require proof of the existence of the trust to allow the transfer. To maintain the privacy of the information in your trust, your attorney can provide a certificate of trust to use for that purpose, so you do not have to give the institution a copy of your trust document.
Assets with designated beneficiaries — such as IRAs, other tax-deferred retirement accounts, and life insurance policies — require special attention, because they cannot be transferred directly into a trust. Business interests must also be evaluated to determine whether they should be part of funding the trust.
At Asset Protection & Elder Law of Georgia, we assist the client with real estate transfers that are part of funding a trust. We also provide recommendations for other property and assets to use in funding a trust, accompanied by instructions on how to transfer those assets into the trust. We are always available to answer questions and interface with financial professionals when necessary.
The funding process is not difficult, but it can take time to complete. You may handle some transfers yourself, but you must be certain to follow your lawyer’s instructions in doing so. Until you finish the process of funding a trust, you have not completed all the steps necessary to make your trust effective and operational.
Funding a testamentary trust, which occurs on the death of the grantor, is accomplished differently from funding a living trust. Your estate planning attorney assists you with putting the right documents in place to fund a testamentary trust as part of the process of creating it.
Property Outside a Living Trust
It is very important to follow through with funding a trust after you create it. If you do not fund the trust, it will not be fully effective for your intended purposes.
If you intentionally (or unintentionally) do not transfer some property into a living trust, a pour-over will in your estate plan ensures that any property remaining outside the trust on your death will be transferred into the trust for distribution. When you establish a trust, your lawyer includes a pour-over will as part of your estate plan, which functions as a safety net to make certain that all assets end up in the trust. However, property transferred into a trust by a pourover will does not avoid the probate process. The only way to avoid probate of trust assets is to transfer the property into the trust during your lifetime.
Talk With an Experienced Georgia Estate Planning Attorney
Our Cartersville estate planning practice at Asset Protection & Elder Law of Georgia focuses on helping clients find the right solutions for all their concerns involving their assets, families, and estates. Determining whether a trust can provide benefits for a client and their loved ones is an important part of our legal services. When we help a client establish a trust, we also assist with the process of funding a trust to ensure that the trust is fully effective and operational.
We serve clients throughout the communities northwest of Atlanta, including in Bartow County, Cobb County, Cherokee County, Gordon County, Floyd County and Paulding County. To schedule a consultation, call us at (770) 382-0984 or contact us through our online form.
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