An "Unfunded" Living Trust is Not Worth the Paper It's Written On

A Living Trust can prevent your assets from going through probate, minimize or even eliminate estate taxes, and allow you to retain control over your assets if you are incapacitated or pass away. However, to experience these benefits your assets must be put into your Living Trust. This process is called “funding” your trust.

The steps necessary to “fund” an asset into your trust depend on the type of asset. Certain assets, such as bank accounts, stocks and mutual funds must be “retitled” in order for them to be funded into your trust. A Trust is funded with real estate in a similar fashion. However, because of strict legal drafting requirements it is generally advisable to let an attorney prepare the necessary deed(s) to retitle the property.

A Trust can also be also funded with assets by using beneficiary designations. These assets typically include life insurance policies, annuities and retirement benefits such as 401k, IRA and 403(b) plans. To fund your trust with life insurance proceeds generally requires you to name your trust as primary beneficiary. The rules for funding your trust with retirement benefits are much more complicated. Proper beneficiary designations must be made to provide maximum protection of those assets from estate, income and other taxes. You should consult your plan administrator accountant and/or attorney before making retirement asset funding elections. Although proper funding of a Living Trust requires a little knowledge and leg work, the benefits are more than worth it.

Categories: Estate Planning

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