This is an article from the Hunter Law Office (http://www.hunterlawoffice.net) in Fishers, Indiana, that we thought others may find helpful.
Everyone has heard of trusts, but understanding how they work is another story. Working in the business of trusts and estate planning has given me a unique view of the situation. One thing I know for sure is that the best trust in the world is worthless if it is not properly funded.
Funding is the process of transferring ownership of your stuff (assets) into the Trust’s name. Depending on the type of trust and purpose for which it was created, funding can take on lots of different looks, but ultimately, an unfunded trust is just a stack of paper.
Here are some of the top reasons to properly fund your trust:
1. It will save you and your heirs LOTS of money!! While legal fees are something everyone has to deal with at some point, why not minimize the costs? Spend a little more in the planning stage (have your trust funded by a professional – or better yet, your lawyer should do it as part of their services) and you’ll save a bundle later! Consider this: Two identical trusts created at the same time, one is fully funded (all assets transferred into trust ownership), but the other is not. Both also have “Pour-over” Wills. At death, the fully funded trust is completely resolved in the conference room and heirs receive their inheritance within a short time. In the second scenario, the Will must first be probated (read: court proceeding – expensive) in order to transfer the assets out of the owner’s name and into the trust’s name. Once probated, the trust still needs to be settled (as in the first scenario). The unfunded trust took twice as much time, effort, and hassle to resolve, not to mention the extra fees and stress that your family was dealt.
2. If your trust is for a specific purpose (i.e. a special needs child or farm plan), funding is absolutely vital. Trusts do not work if they are not funded properly. A special needs trust can be funded immediately or funded after death with life insurance proceeds or a bequest. The important thing about special needs trusts is that the source of the asset is proper for the type of trust.
3. Keep the in-laws out. Yes, of course you love your in-laws … they are marvelous people who you love like your children. No question about it. But, do you really want them to control your estate after your death or during an illness? Funding your trust during life can prevent an unintentional inheritance going to the wrong person.
4. Protect it. With the right kind of trust planning, you can protect your assets against creditors, predators, taxes and even the cost of long-term care. However, none of it will work unless the trust is properly funded.