What does it mean to fund my living trust?

A living trust is an arrangement that is set up by the grantor – the person giving assets to a trust for the benefit of the trust beneficiaries. The trust sets out the terms and conditions of how those assets are going to be held.

In a sense, a trust is like a box. At the time it is created, it is empty. It will only come to hold what is placed inside of it. Thus, after the trust is created, it must be funded with the assets it is meant to hold and govern. Trust benefits will only apply to the trust assets. If no assets are transferred into the trust, the structure of the trust may remain in place, but only as an empty container – and any intended benefits of the trust will not materialize.

Funding a trust means transferring assets into the trust. For example, real estate is transferred by recording a deed that names the trust as the owner. For bank and brokerage accounts, the accounts themselves may need to be retitled so that the ownership of the accounts are properly reflected with the financial institution. Transfer of various kinds of personal property may be reflected through documents that memorialize the transfer, together with any filings required by law or any pre-existing contractual arrangements.

What are the advantages?

One advantage is that trust assets do not go through probate when the grantor passes away. Instead, the trust will continue to own them. The trust may provide that the property is distributed to beneficiaries, or it may provide that the property is to be held in the trust and, for example, the income used for a beneficiary’s health, education, or welfare. The administration of trust assets also enjoys greater privacy. When property goes through probate, it is a matter of public record, which potentially may be reviewed by third parties. A trust avoids that, as the trustee is responsible for administration of trust assets.

What is a trustee?

The trustee is the person who administers the trust, who makes sure that the provisions in that trust agreement get followed, and who maintains and manages the property that the trust holds. In a living trust, the grantor may also be the first trustee during his life. Successor trustees are named to serve after the initial trustee is either no longer alive, no longer wants to serve, or is no longer able to serve.

What, then, is the effect of the transfer?

When property is transferred into trust, legal title passes from the individual to the trust. That does not necessarily mean that the individual becomes unable to use that property, however. Use of the trust property depends on the terms of the trust, but a living (or inter-vivos) trust generally provides that the trustee may use the trust property, enjoy it during his lifetime, and perhaps even sell, gift, or transfer it. (In contrast, some irrevocable trusts are structured to limit such uses.)

The risk of not funding the trust

Although it is possible to have a trust agreement in place without funding it, the intended benefits of such a trust may go unrealized. The assets of the person will remain titled to him individually, but will therefore remain subject to probate, as well as to personal liabilities which may accrue. The trust would be able to receive assets in the future, but will remain as an empty vessel until actually funded.