How to Fund a Trust

If you have had a trust drawn up for estate planning, it is important that you verify that your trust is properly funded. Ensuring that assets are either in the trust or transfer to the trust upon your passing will help prevent an unnecessary probate and potential tax liability issues. It is not uncommon for families to have trusts created but then fail to properly fund the trust, thus rendering the trust next to useless. The method of funding the trust will depend on the asset or assets owned by the family. Here are some possible assets:

1. Real Estate. Real estate- the family home- is often a family’s most expensive asset. It is crucial that the real estate makes it into the trust to avoid probate. A married couple often owns real estate by tenancy by the entirety, which passes the real estate to the survivor between the married couple upon the first spouse’s death. But upon the second spouse’s death, without further legal paperwork, the real estate will be a probate asset and require a probate court proceeding to liquidate. To avoid such a scenario, an attorney can assist with drafting a deed in trust to put the real estate into the trust immediately, or to create a transfer on death instrument to transfer the real estate to the trust upon the second spouse’s death. Both function to ensure that the real estate does not become a probate asset. See our article on Transfer on Death Instruments here.

2. Retirement Plans. 401Ks, IRAs, and their Roth equivalents are typical assets for a married couple in Illinois. Due to certain distribution requirements (required minimum distributions) and tax consequences, some people prefer to name individuals as beneficiaries of retirement plans rather than trusts. But with proper pass-through trust planning, it is possible to name trusts a beneficiary of a retirement plan with only minimal negative impact. To determine whether it makes sense to send retirement plans through a trust it is crucial to speak with an estate planning attorney and CPA. Under any scenario, families should review their retirement plans to ensure that they will not end up as a probate asset.

3. Investment Accounts. Other investment accounts, such as a stock portfolio, can name a trust as a beneficiary. Such assets are typically liquidated upon a person’s passing and distributed to beneficiaries under a trust or will.

4. Life Insurance Policies. Whether you have a whole life insurance policy or a term life insurance policy, it is important to make sure that you have beneficiaries listed on the policy, and if you want the funds to pass through the trust, that the trust is named as the primary beneficiary.

5. Bank Accounts – Checking and Savings. For many people, it does not make sense to place their checking and savings accounts into a trust. Doing so will change how the bank account is titled and may require additional proof of authority to sign when making payments to third-parties. Instead, the best course is to assign payable on death (POD) designations on the accounts so they transfer to the trusts or intended beneficiaries upon your passing. If your bank doesn’t permit POD designations, then either consider a bank that permits them or keep just enough money in the accounts so that probate will not be triggered upon your passing. Currently in Illinois if a person passes away with less than $100,000 in total probate assets (including bank accounts without POD designations), then a small estate affidavit can be used to access funds rather than probate. Of course, there is no guarantee that probate can be avoided altogether as there are other specific situations that can lead to probate despite the best planning.

6. Cars. Cars can be titled into the name of a trust. For many people this only makes sense for cars of some value. See our post here on acquiring cars from an estate after someone passes away.

7. Inheritance. For those who are beneficiaries of a trust, perhaps trusts set up by their parents, it is possible to assign the trust to another person or entity upon your passing. This is known as the exercise of a power of appointment. A proper estate plan will address powers of appointment if this is a scenario that you face.

8. Physical Assets, Such as Heirlooms and Other Tangible Goods. Many people have tangible personal items of significant value. Value may be monetary or it may be emotional value. Family heirlooms are often of primary concern for many families planning their estate. If you are inclined to distributed certain heirlooms to certain family members, this can be addressed in a trust. A list of tangible personal property and how the property should be distributed can be included as part of a trust.

9. Business Interests. For business owners, their business is often their most valuable asset. Assigning the business interest to the trust can be a good option but it is not always available. It is important to speak with an estate planning attorney and a business attorney such as the estate planning and business attorneys at Johnston Tomei Lenczycki & Goldberg LLC to determine how to address the business in the estate plan.

Contact the Gurnee and Libertyville Estate Planning Attorneys at JTLG LLC Today

It is important to properly fund your trust so that probate does not result upon your passing. The experienced Libertyville estate planning lawyers at Johnston Tomei Lenczycki & Goldberg LLC will review your estate plan and asset structure to determine if any changes need to be made to the plan or asset designations in order to avoid probate. We offer a no charge initial consultation where we can meet face to face, provide you with your available options, and advise you on the best way to proceed with estate planning. If you are interested in speaking with a Libertyville estate planning attorney, call our office today at 847-549-0600.