Technically, property and assets fund a trust. It is common to hear the word “trust” and “trust fund” used synonymously. So common, in fact, that we’re going to use “trust fund” throughout this article. But what people really mean is that there is a trust set up that is funded. A trust is a common way to protect your assets for beneficiaries. Because assets that fund the trust are transferred to and owned by the trust, they avoid probate and reduce the amount of taxes your loved ones pay on their inheritance. But is your trust properly funded?
In addition to wealth preservation, a trust can place conditions on the release of funds to beneficiaries. Speaking with an experienced estate planning attorney can help you determine which type of trust fund is right for you and your goals.
In order for a trust fund to exist, it must be funded. This means properly transferring assets either to be owned by the trust or designating the trust as the beneficiary. Before choosing what assets to set aside, it is important to make a distinction between irrevocable and revocable trusts and know what happens to assets not in a trust. A trust attorney can act as your confidential advisor on how to set up a trust fund in order to meet your estate goals.
Irrevocable Versus Revocable Trusts
A living trust, set up during your lifetime, is revocable. That means you can change it at any time. An irrevocable trust cannot be changed after the agreement has been signed. Why does it matter which type of trust you set up? It matters because revocable trust assets, as opposed to irrevocable trust assets, are still considered your own personal assets for creditor and tax purposes. The kind of trust you choose really depends on your goals, but even deciding on goals can benefit from the assistance of an estate planning attorney.
Assets Left Outside the Trust
To better illustrate why your trust must be properly funded, it may be best to describe some of the effects of leaving assets out of the trust. When you create a trust, you will assign a trustee to look after it. This trustee’s power is limited to the contents of the trust, however, and not any of your other assets.
Assets not in the trust at the time of a person’s death may have to go through probate, which can be a long and detailed process for your intended beneficiaries. It may result in a higher level of taxation than one you wanted to impose on them. In addition, leaving assets out of the trust may give you less control over what happens to those assets. Some may pass to your spouse through the right of survivorship or be split between other heirs. Also, by avoiding probate, your trust agreement will remain a private document and will keep the details of your assets off the public record.
How to fund a trust varies depending on the type of property or asset. Real property requires a deed transfer, titled personal property requires obtaining a new title, and untitled property can be transferred with an assignment of ownership document. There are a number of different assets that can fund a trust, and if not done properly, can mean they aren’t protected from probate.
Get Advice from a Lawyer
In order to discuss setting up and funding a trust, and the differences between a will vs. trust, request a free consultation today to speak with an attorney at Estate Planners of Arkansas, P.A. at 501-414-8965.