What Is The Importance Of Funding A Trust?
Getting a trust set up can be emotionally difficult for many people. Once they sign the trust, they sometimes feel like they’ve done what they needed to do. However, there are still steps to take after the trust has been executed, including transferring assets into the trust.
I always take care of the real estate for my clients and then give them a set of instructions for what to do with the other assets. I also follow up six months later to make sure that they’ve done it. Sometimes when people do it on their own or if they use a low-cost document preparation service, they don’t realize that the trust isn’t going to work properly unless they fund it. Sometimes they are told, but they just don’t follow through. Some of these things cannot be done without talking to the bank and talking to a financial adviser, and they just never follow through with it.
People sometimes acquire a new asset and forget that they need to have the title in the name of their trust. Sometimes people forget to make sure that the beneficiary on their IRA or life insurance matches the beneficiary on the trust. Some people end up putting their children on their accounts even though they have already gone to all the trouble to have a trust made, which causes all kinds of issues.
Sometimes people refinance. If you refinance your house, the lender may require you to take it out of the trust to close on the financing. The lender will often tell you that they’ll just put it back in the trust after you close but if they never end up doing so then the family might not realize that. This sort of thing happens all the time, which is why you need a pour-over will to catch anything that didn’t get put in the trust.
Ideally, though, it’s better to stay on top of it. Just remember in the back of your head that you have this trust and that things need be titled in a specific way. Sit down with a lawyer every couple of years and review all your assets to make sure everything is in the trust.
If I Put My Assets In A Trust Does That Mean I Lose Control Of Them?
No, you would still be the beneficiary and you would still be the trustee. The trustee has all the same authority that you would have had as the direct owner. You can still buy things, sell things, borrow against things, or whatever else needs to be done. As the trustee you’ll have all the authority that an individual has, and since you’re the sole beneficiary while you’re alive, you can use your money in any way you want.
Generally speaking, you cannot protect your assets from creditors just by putting them in a trust. However, you can protect them from your beneficiaries’ creditors. For example, if you leave your assets to your children upon your death and the trust is set up properly, your children’s creditors can be kept out of the assets you leave for them. That includes creditors from lawsuits, bankruptcies, and divorces. There are ways to set up trusts to protect your assets from your own creditors. There are certain jurisdictions that allow for what is called a self-settled asset protection trust. Some of them are overseas, and there are a couple of states that allow it now.
Is A Will Just As Good As A Trust? Do I Need Both?
It depends on what you’re trying to accomplish. In general a will costs more to administer because we have to go through the whole probate process which can take a lot of time and money. A trust is more sophisticated than a will because you can avoid probate court and you can also do a lot of very specific planning that you cannot do with a will. Whether one is better than the other really depends on your situation. I would define “better” as what’s best for your circumstances. In some cases, it doesn’t make sense to do a trust and you should just do a will. In some cases, it makes more sense to do a trust. It just depends on the client’s situation and goals.
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