Fund your trust

Estate Planning

Protect Your Assets: A Guide to Funding Your Trust

Mar-28 2023

Funding Your Trust: A Critical Step in Effective Estate Planning

Funding a trust is a critical step in estate planning. A trust can be an excellent way to manage your assets during your lifetime, protect them from creditors and lawsuits, and ensure that they are distributed according to your wishes after your death. But for a trust to work effectively, it must be funded properly.

What is Funding a Trust?

Funding a trust means transferring ownership of assets from your individual name to the name of your trust. When you create a trust, you become the trustee, the person responsible for managing the trust's assets. But to make sure the trust has assets to manage, you need to transfer assets into it. The assets you transfer to the trust will be governed by the terms of the trust, which you can specify in your trust agreement.

What Assets Should You Transfer?

Not all assets need to be transferred to a trust. Generally, you should transfer assets that are significant in value or difficult to transfer outside of probate. Examples include real estate, investments, and business interests. You should also consider transferring assets that you want to ensure are protected from creditors, including in the case of bankruptcy, divorce, or other legal disputes.

How to Transfer Assets to a Trust

There are several ways to transfer assets to a trust. Some examples include:

Real Estate: To transfer ownership of a house or other real property, you need to execute and record a new deed in the name of the trust.

Bank Accounts: To transfer ownership of bank accounts, you should create new accounts in the name of the trust and close the old ones.

Investments: To transfer investments, you may have to execute new ownership documents, such as stock certificates or mutual fund registrations, in the name of the trust.

Business Interests: To transfer ownership of a business, you may need to create new ownership documents or change your entity structure.

What Happens if You Don't Fund Your Trust?

If you fail to transfer assets to your trust, those assets will not be governed by the trust's terms. They will be distributed according to your will or the state's intestacy laws (laws that go into action if you don't have a will). This can result in unnecessary expenses and delays, including the need to probate the assets. Also, in the absence of the trust's governance, these assets may be exposed to creditors and lawsuits.

In conclusion, funding a trust is an essential part of estate planning. By transferring assets to a trust, you can ensure that your assets are distributed according to your wishes, protected from creditors and lawsuits, and managed effectively during your lifetime so you can fully protect what matters.

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