How is a Trust Funded?

A trust can have many benefits for you and your beneficiaries, including avoiding the probate process and protecting your assets. However, it’s essential to understand that in order for a trust to be effective, it must be funded. This means transferring assets from your ownership into the trust. While there are many different assets that can be used to fund a trust, it’s essential to understand how to transfer each type of property to ensure the trust is effective — and your objectives are met.

What is a Trust?

A trust is an estate planning vehicle that establishes a fiduciary relationship between three parties — the creator (grantor) of the trust, a trustee, and a beneficiary. The grantor transfers the assets in the trust to the trustee who then holds them on behalf of the beneficiary. They can serve a variety of purposes, including managing your wealth, planning for incapacity, protecting your legacy, and keeping your financial matters private after your passing.

California law recognizes a variety of trusts — and they can be either revocable or irrevocable. While revocable trusts can be changed or modified, irrevocable trusts cannot. Common examples of trusts can include:

• Living trusts
• Testamentary trusts
• Charitable trusts
• Special needs trusts
• Dynasty trusts
• Education trusts
• Pet trusts

It’s vital to consider your unique estate planning goals when creating a trust. Each type of trust serves a different purpose and can come with different asset protection advantages, as well as tax implications. An experienced estate planning attorney can best guide you through the process associated with setting up a trust and ensure it is properly funded.

How to Fund a Trust

Funding a trust is not difficult, but it can be time consuming. For assets with a title or deed, you must retitle your assets in the name of the trust. When there is no formal title, a general transfer document can be signed. Once the trust owns the new property, they no longer belong to the original owner — and are exempt from going through the probate process. While broad categories can be used for each item in the trust, it’s best to specifically identify any property that goes into the trust in the trust instrument or on a separate “schedule.”

Nearly any type of asset can be used to fund a trust, including the following:

• Real property
• Bank accounts
• Vehicles
• Securities
• Business interests
• Corporate stock
• Personal property
• Intellectual property
• Art and collectibles
• Life insurance

There may be certain assets that cannot be transferred into the trust. For instance, individual retirement accounts (IRAs) cannot be owned by a trust during your lifetime. However, you can name the trust on your beneficiary designation as primary or contingent beneficiary so it can receive the retirement benefits after your passing.

In the event you have signed your trust instrument but have not changed titles and beneficiary designations, it is unlikely that you will be able to avoid the probate process.

Funding a Trust with a Pour-Over Will

In addition to specifying each individual asset you wish to transfer into a trust, you can also fund a trust using a “pour-over” will. When a trust is funded in this way, all the assets you own in your name would be transferred into the trust at the time of your passing. In other words, the trust is not funded until your death. It’s important to note that assets in a pour-over will do not avoid probate, so this method is not preferred.

There are several considerations when it comes to using a pour-over will to fund a trust. Critically, if you become incapacitated during your lifetime, a successor trustee would not have the authority to manage your assets because they are not yet funneled into the trust. Pour-over wills are best used as a catch-all provision for any assets you may have forgotten to put in your trust.

Can You Amend a Living Trust in California Once it Has Been Funded?

If you are creating a revocable living trust, one of the advantages is that you can amend it at any point during your lifetime. California probate code specifies two ways a revocable trust can be amended or revoked. The trust instrument may contain a provision that outlines how the trust should be revoked. If it does not, an amendment document must be drafted that clearly states the modifications you would like to make to the trust.

Contact a Knowledgeable California Estate Planning Attorney

If you have questions regarding how to set up and fund a trust, a skillful California estate planning attorney can help you navigate the process. The attorneys at White & Bright, LLP have extensive experience handling estate planning matters in California. Call us at (760) 747-3200 or fill out our online contact us form to schedule a consultation to learn how we can help.