Funding Your Living
Funding Your Living Trust FAQs
Funding Your Living Trust
These days many people choose a revocable living trust instead of relying on a will or joint ownership in their estate plan. They like the cost and time savings, plus the added control over assets that a living trust can provide.
For example, when properly prepared, a living trust can avoid the public, costly, and time-consuming court processes at death (probate) and incapacity (conservatorship or guardianship). It can let you provide for your spouse without disinheriting your children, which can be important in second marriages. It can save estate taxes. And it can protect inheritances for children and grandchildren from the courts, creditors, spouses, divorce proceedings and irresponsible spending.
Still, many people make a big mistake that sends their assets right into the court system: they don’t fund their trusts.
I have a will. Why would I want a living trust?
A will only goes into effect after you die. So, it provides no protection if you become physically or mentally incapacitated – an increasingly common issue because of longer lifespans. A court could easily take control of your assets before you die — a concern of millions of older Americans and their families.
Fortunately, there is a simple and proven alternative to a will — the revocable living trust. It avoids probate and lets you keep control of your assets while you are living — even if you become incapacitated.
What is probate?
When you die, a probate court will:
- Determine whether you left a valid will
- Ensure your debts are paid
- Ensure that all taxes are paid, and...
- Ensure your assets are distributed according to your will. If you don’t have a valid will, your assets are distributed according to state law.
What is so bad about probate?
Doesn't joint ownership avoid probate?
Watch out for other problems. When you add a co-owner, you lose control. Your chances of being named in a lawsuit and of losing the asset to a creditor are increased. There could be gift and/or income tax problems. And since a will does not control most jointly owned assets, you could disinherit your family.
With some assets, especially real estate, all owners must sign to sell or refinance. So if a co-owner becomes incapacitated, you could find yourself with a new “co-owner” — the court — even if the incapacitated owner is your spouse.
Why would the court get involved at incapacity?
Once the court gets involved, it usually stays involved until you recover or die and it, not your family, will control how your assets are used to care for you. This guardianship or conservatorship process can be thought of as a pre-death probate that’s expensive, potentially public and embarrassing, time-consuming, and difficult to end. Plus, it does not replace probate at death, so your family may have to go through probate court twice!
Does a durable power of attorney prevent this?
What is a living trust?
Unlike a will, a living trust can avoid probate at death, control all of your assets, and provide for court-free management of your assets if you become incapacitated.
How does a living trust avoid probate and prevent court control of assets at incapacity?
Legally you no longer own anything; everything now belongs to your trust. So there is nothing for the courts to control when you die or become incapacitated. The concept is simple, but this is what keeps you and your family out of the courts.
Do I lose control of the assets in my trust?
Is it hard to transfer assets into my trust?
Some beneficiary designations (for example, life insurance policies) should also be changed to your trust so the court can’t control them if a beneficiary is incapacitated or no longer living when you die. The beneficiary designation on your IRA, 401(k), or other retirement plan can be exceptions. Verify all beneficiary designations with your attorney before making them.
Doesn't this take a lot of time?
Should I consider a corporate trustee?
If something happens to me, who has control?
What does a successor trustee do?
Does my trust end when I die?
How can a living trust save on estate taxes?
Doesn't a trust in a will do the same thing?
Is a living trust expensive?
How long does it take to get a living trust?
Should I have an attorney do my trust?
If I have a living trust, do I still need a will?
Is a 'living will' the same thing as a living trust?
Are living trusts new?
Who should have a living trust?
Summary of Living Trust Benefits
What is 'funding' my trust?
Who controls the assets in my trust?
Why is funding my trust so important?
What happens if I forget to transfer an asset?
Who is responsible for funding my trust?
Won't my attorney do this?
How difficult is the funding process?
Some institutions will want to see proof that your trust exists. To satisfy them, your attorney will prepare what is often called a certificate of trust. This is a shortened version of your trust that verifies your trust’s existence, explains the powers given to the trustee and identifies the trustees, but it does not reveal any information about your assets, your beneficiaries and their inheritances.
While the process isn’t difficult, it’s easy to get sidetracked or procrastinate. Just make funding your trust a priority and keep going until you’re finished. Make a list of your assets, their values and locations, then start with the most valuable ones and work your way down. Remember why you are doing this, and look forward to the peace of mind you’ll have when the funding of your trust is complete.
Which assets should I put in my trust?
Generally, assets you want in your trust include real estate, bank/saving accounts, investments, business interests and notes payable to you. You will also want to change most beneficiary designations to your trust so those assets will flow into your trust and be part of your overall plan. IRAs, retirement plans and other exceptions are addressed later.
Will putting real estate in my trust cause any inconveniences?
Because your living trust is revocable, transferring real estate to your trust should not disturb your current mortgage in any way. Even if the mortgage contains a “due on sale or transfer” clause, retitling the property in the name of your trust should not activate the clause. There should be no effect on your property taxes because the transfer does not cause your property to be reappraised. Also, having your home in your trust will have no effect on your being able to use the capital gains tax exemption when you sell it.
Also, having your trust as the owner on your homeowner, liability and title insurance may make it easier for a successor trustee to conduct business for you. Check with your agent.