Have You Funded Your Living Trust?

Have You Funded Your Living Trust?

Once a living trust is in place, it is important to fund the trust in order minimize future risk and expense. "Funding" a trust means changing the way the person who made the trust – called a grantor – holds title to his or her assets from the grantor's name individually, to the person named as trustee of the living trust (the grantor and the trustee who administer the living trust are often the same person). Types of assets that should be retitled in many cases include real estate (e.g., a home), bank accounts, certificates of deposit, savings bonds, investment accounts, LLC membership and partnership interests, and stocks and stock options. Retitling assets into a living trust does not require the trustee to obtain a separate tax identification number or to file a separate tax return during the grantor's lifetime.

In addition to retitling certain assets, the grantor should make sure proper beneficiary designation forms have been submitted and accepted for "pay on death" assets, such as life insurance policies, annuities and retirement account assets. It is best to consider all options when naming primary and contingent beneficiaries. There are pros and cons to naming a living trust as a beneficiary. Retirement account assets should not be transferred or retitled to a living trust, but post-death beneficiary language should be carefully considered. Due to the complexity of the federal tax laws, additional risks, complications and delays can arise when a trust is designated as the beneficiary of retirement accounts assets, as opposed to an individual beneficiary. Other considerations should also be taken into account like if the grantor's descendants are minors or have special needs, or the grantor wants to make gifts to charities.

If you have questions or would like my assistance to make sure your assets pass to the person(s) of your choosing and in the manner you choose, I would be happy to hear from you. It would be helpful if you made a list of your assets that includes estimated values, information on how assets are titled (e.g., individually or jointly with someone else), and any debts, ownership obligations and other restrictions like prenuptial agreements, divorce decrees, loan documents, buy-sell agreements, etc., that may limit your ability to dispose of your property.