What Does It Mean to Fund a Trust?

Dollar or cash in burlap sacks and a white paper cut out of family on wood balance scale - Funding a trust concept

Trusts have become increasingly popular as an estate planning tool in recent years. Trusts aren’t just for the wealthy. They are useful for anyone who does not want their assets to have to go through probate at their death. A trust is a legal relationship in which the creator of the trust (called the grantor, settlor, or trustmaker) entrusts a trustee with the management of assets for the benefit of one or more beneficiaries. In revocable living trusts, the grantor often serves as both trustee and beneficiary during their life. They get to use and enjoy trust property just as if they still owned it in their own name.

When the grantor dies or becomes legally unable to manage the trust, a successor trustee named in the trust takes over that role. Depending on the terms of the trust, the trustee may distribute trust property to named beneficiaries, or continue managing those assets. Aside from avoiding probate, one of the benefits of having a trust is that it can protect assets for beneficiaries who are not prepared to responsibly handle receiving their inheritance all at once.

In short, trusts have many advantages—but only if they are funded. How do you go about funding a trust?

Why Does a Trust Need to Be Funded?

Many people include trusts in their estate plans because doing so is recommended by their attorney, or because someone else they trust has told them it’s a good idea. That’s fine, as far as it goes. But many people walk out of their estate planning attorney’s office thinking that because they have created a trust, it will offer the protections they have been promised. Unfortunately, that’s not true. A trust that is not funded is only a piece of paper—and a very expensive one, at that.

Creating a trust without funding it is the equivalent of buying an empty casserole dish and thinking you’ve got dinner. In both cases, you won’t get the benefit you want unless you put something into the vessel.

It’s the responsibility of the attorney to explain the concept of trust funding to their clients. Funding a trust simply means transferring ownership of assets from the grantor to the trust, which is a legal entity. Some assets are easy to place in a trust; others are a little more challenging.

How to Fund a Trust in Michigan

Almost any kind of asset can be put in a trust: bank accounts, real estate, vehicles, art and collectibles, investment accounts, insurance policies, intellectual property, even livestock—you name it. Property intended to go into a trust should be identified, either in the trust document itself or in an attachment to the trust called a “schedule.” However, it is critical to understand that simply listing most assets you want to put in the trust does not transfer those assets to the ownership of the trust (with the exception of things like personal property, as we’ll see below).

It is helpful, when you speak with your estate planning attorney, to have a list of the assets that you want to place in the trust. They can then give you guidance as to how to fund your trust. For instance, with a bank account, the account owner or owners usually just need to go to the bank with their trust document and speak with a banker to transfer the account into the name of the trust. The new name on the account might be something like “Smith Family Trust, Edward Smith, Trustee.”

You can fund your trust with life insurance or retirement accounts by making the trust the beneficiary of those accounts. For real estate, you will need to transfer the property from yourself to the trust via deed. Similarly, you can transfer a vehicle to the trust by signing the title over to the trust and having the Secretary of State issue a new title with the trust listed as owner.

What about artwork, jewelry, and other personal property that may not have a deed, title, or account information? Those should be identified as particularly as possible in a schedule to the trust. The more specific you are about what items you are transferring to the trust, the easier it will be for both your successor trustee and beneficiaries.

For example, you could list “all jewelry” on the schedule, but it’s better to identify it as “my 1.5 carat diamond engagement ring, gold wedding band, square-cut emerald ring with diamond baguettes, and double-strand pearls.” You should review your schedule of personal property on a regular basis to make sure it has been updated to include new property or remove property the trust no longer owns.

You can also use a “pour-over” will to fund your trust. In essence, your will “pours” all the assets that you own in your sole name at the time of your death into your trust. However, assets in a pour-over will still need to go through probate. And if you use a pour-over will as the only means of funding your trust, the trust remains unfunded until after your death. That means if you become legally incapacitated during your life, your successor trustee cannot manage your assets because they are not yet in your trust. The best use for a pour-over will is to “catch” any assets that you didn’t have a chance to put in your trust before your death and make sure that property is funneled into the trust.

Your estate planning attorney is your best resource for making sure that your trust is completely and properly funded. If you have questions about creating or funding a trust, please contact the Law Office of Suzanne R. Fanning to schedule a consultation.