A trust can form the cornerstone of your estate plan, and they come in a variety of flavors. Indeed, there’s one for nearly any estate planning situation. Here’s a short list of a trust’s potential advantages: trust assets may avoid probate, provides planning flexibility, protects assets and can minimize taxes.
But setting up a trust isn’t easy. Even worse, after the trust is up-and-running, it may all go for naught if it isn’t properly funded. That’s like throwing good money after bad.
When you establish a trust, you must choose its terms, based on the form of trust you intend to use. For example, a revocable living trust may be used to remove certain personal assets from probate. You must name the beneficiary, or beneficiaries, of the trust and the trustee who will manage the assets. Plus, you need appoint a back-up trustee.
Of course, you must also transfer assets into the trust. It can be anything from cash to real estate to securities — such as stocks, bonds or mutual funds — to business interests. However, failing to fund the trust, or doing so improperly, defeats your intentions.
Notably, an unfunded trust doesn’t hold legal title to the assets, so the trustee has no control over them. Without this step, the assets won’t pass to the beneficiaries designated in the trust and they might be subject to probate. The assets could even wind up in the hands of creditors rather than beneficiaries. In the same vein, improper titling of assets may thwart your intentions. Work with your attorney or estate planning advisor to ensure your trust is properly drafted.