In recent decades, the popularity of trusts has increased dramatically. Where trusts were once used only by extremely wealthy families as a tool for passing down the family wealth, they are now used by the average estate planner to accomplish everything from funding a child’s college education to philanthropic gifting to providing for the family pet after death. If you are considering the incorporation of a trust into your overall estate plan you may be unsure how to fund your trust. Funding a trust is actually easier than most people realize but it must be done correctly to have a quality living trust.
Trusts fall into two categories – testamentary and inter vivos (commonly referred to as a living trust). A testamentary trust does not take effect until your death whereas a living trust becomes effective when all the elements of creation have been satisfied and sufficient assets are transferred into the trust to fund the trust. Trusts can also be either revocable or irrevocable. A revocable trust can be modified or terminated by you at any time and for any reason. An irrevocable trust, on the other hand, cannot be modified or changed once it takes effect.
Almost any type of assets can be used to fund your trust. Cash is certainly the easiest asset to transfer into a trust; however, there are numerous other types of assets that are commonly used to fund a trust, including, but not limited to:
- Real estate
- Mutual funds
Life insurance benefits
In essence, almost anything of value can be used to fund a trust. Typically, an asset is transferred into a trust in the same manner as would be used to sell the asset because a trust is a spate legal entity capable of purchasing, selling, owning, and transferring assets. For example, if you wish to transfer real estate into your trust you will sign the deed, or other ownership document, over to the trust and the property becomes trust property. In the case of life insurance proceeds you will simply name the trust as the beneficiary of the policy. When you die, the insurance proceeds will pay out into the trust. The terms of the trust will then dictate how the proceeds are invested, managed, and ultimately distributed to the trust beneficiaries.
If you plan to include a trust in your estate plan and have specific questions about funding the trust, consult with your estate planning attorney.
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