If you have a trust or are planning to establish one in the near future, you may have heard that you need to “fund the trust” in order for it to operate effectively. What exactly does that mean? And how do you do it?
We craft each trust for your specific situation, so funding a trust will look a little different in every situation. But here are some general factors involved in funding a trust.
A Trust is Like a Box
Trusts are artificial legal creations that you can’t see or touch. Many people like to think of them as a virtual box for holding property. When you create that trust, the box is empty. Funding the trust is a fancy way of saying that you are putting property into the trust “box.”
Trusts can hold all different types of property, so you can fund a trust by putting many different assets into it, including real estate, bank accounts, or your stamp collection. A trust is considered to be fully funded when it has enough property to satisfy trust goals. Those will differ for each trust.
For instance, if you set up a revocable living trust and your goal is to enable your loved ones to receive your property without the need to deal with the probate process in Virginia, you’ll need to transfer in all of the property you have that might otherwise go through probate, to fully fund your trust. On the other hand, if you set up an education trust, the trust might be considered fully funded when you have enough assets to cover anticipated educational needs for your beneficiary.
Funding a Trust with Real Estate or Vehicles
Trusts can and frequently do hold real estate. However, to fund a trust with real property, you need to take specific legal steps to transfer ownership from yourself to your trust. You cannot simply “change” a deed or add a name to it. The law requires the creation and registry of a new deed any time you change an ownership interest in real estate, even if you are changing ownership to a revocable trust that you control.
You will need to have an attorney create a new deed—usually a quitclaim deed—in which you pass your interests in the property to the trust. Then your attorney will record the new deed in the county where the property is located.
If you own vehicles or any property with a written title, you will need a new title with the trust listed as the owner in order to transfer that property into the trust.
Using a Transfer Document
For personal property such as furniture, jewelry, and electronics, the most effective way to transfer ownership into the trust is to create a transfer document. This document lists property, and states that the property is now owned by the trust. This is usually written out in the name of the trustee. It might say Trustee Jane A. Smith, as Trustee of the Jane A. Smith Trust.
The transfer document does not need to list every item of property individually but instead can include broad categories such as “clothing.” However, if there are certain valuable pieces, it is a good idea to list them separately to ensure there is no misunderstanding and to keep valuables from becoming lost in the shuffle later.
Funding a Trust with Accounts
You can transfer accounts into your trust, but the procedure for doing so will be different according to the institution. It is helpful to talk to your estate planning attorney about which accounts you want or need to transfer into your trust. Certain accounts, such as tax-deferred retirement accounts, should not be moved into a trust because this can trigger tax consequences.
Many accounts can transfer directly to beneficiaries with a beneficiary clause or payable on death clause, so there may be no need to transfer them into your trust. However, if you want to ensure that your trust has funds to pay bills or accomplish other purposes, you may want to transfer ownership of one or more accounts into the trust.
What Happens if You Don’t Fund Your Trust?
If you don’t fund your trust properly, the trust will not be able to accomplish what you set it up to do. If your goal is to avoid probate, but you pass away without retitling your RV in the name of your trust, then your loved ones may need to go through the probate process just to deal with the one piece of property that is left in your estate.
Jennifer Porter Law, PLLC, Can Help You Fund and Manage Your Trust
Trusts can be very complex, and even a so-called simple trust can be challenging to fund and manage properly. The experienced team at Jennifer Porter Law, PLLC is ready to assist. We can help with creating your trust, answer questions, and help you take the steps necessary to ensure your trust is fully funded. Schedule a consultation to get our assistance with your estate plans in Northern Virginia, Hampton Roads, or the Peninsula.