You have set up a trust, and now you are ready to start funding it. But you realize that you do not know what funding a trust really means. You are not sure whether you should start now or wait until you have more money. Here is what you need to know.
What Is “Funding” a Trust?
When you fund a trust, you give money, property, or assets to the trustee to hold onto for the trust beneficiaries’ benefit sometime in the future. You lose all legal control over the assets (unless you are the trustee of the trust). The benefit of the assets eventually goes to the trust beneficiaries, through distributions from the trust over time or when the trust ends.
What Happens to Property You Give to the Trust?
Money that you give to the trust goes into the trust bank account. The trustee can move the money to an investment account held by the trust so that it can earn more interest, gain value, and generate dividends. The same is true for stocks, mutual funds, and other investments. Real estate or vehicles that you give to the trust must have their titles changed, so that the trust or the trustee on behalf of the trust owns them. Other items such as art or jewelry may be stored in a safe place, auctioned off, or loaned to museums if permissible under the trust and at the trustee’s discretion.
Can You Wait to Fund the Trust?
You can place your assets in the trust at any time before your death. However, you may want to consider contributing as much as you can sooner rather than later. The trustee has to manage the assets you place in trust, even consulting investment advisors and other professionals to avoid the assets losing value. As a result, these assets may gain more value over time than if they were sitting in your bank account.
Also, your beneficiaries will receive larger distributions sooner (depending on the trust terms) the sooner you fund the trust. With no money in the trust, the trustee cannot make distributions.
You may own some assets that are difficult to move into a trust, or that you need now. For example, some mortgage companies will not transfer title to real estate from the individual mortgagee to a trust. Or you may need some of the money that you previously planned to place in trust, to cover emergency medical expenses or for a safety net now. You can transfer that money to your trust later, or leave it to the trust in your will.
Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.