Question: I want to create a trust to provide for my children and avoid probate, but I’ve heard I have to fund it. What is trust funding?
Answer: Trust funding is the process of re-titling assets out of your name and into the name of your trust. Do not be confused by the term “funding”. It does not mean you have to come up with additional money or assets to fund your trust. It just means that you change the name of an asset’s owner from your name personally to the trust’s name.
Trust funding is critical if one wants to use a trust to avoid probate. A big part of the probate process is transferring assets out of the deceased person’s name and into names of the heirs. Probate is the court process that effectuates this transfer. You can imagine, if your parent passed and you went into their bank and told the bank that your parent passed and you were entitled to the money, the bank would ask to see some proof that the money is in fact supposed to be paid to you. This is where the probate court comes in. A probate judge or registrar will sign off on the transfer and create an order or judgment that says you are supposed to get the money.
When you have a properly funded trust, this process is substantially more streamlined. While you are alive, you transfer the title of your assets out of your own name and into the name of your trust. Then, when you pass, you are survived by your trust which owns all of your property. Now a judge isn’t needed to oversee the transfer of the assets – you already did that. Since all of your assets are in trust, your successor trustee is able to begin managing the assets right away (instead of waiting to be appointed and then gathering the assets during the probate process) and distribute assets pursuant to the terms of the trust.
Trust funding is also critical if you want your successor trustee to be able to manage your assets in the event you become incapacitated. With a properly funded trust, if you become incapacitated, your successor trustee will be able to step in right away and manage all of the assets held in trust.
Do you have questions about creating a trust or trust funding? Call Scottsdale trust attorney Abigail Neal today at (480) 699-7992.