Trust Funding: A Quick Guide to Funding Methods

Trusts can be a powerful tool for managing and distributing your assets. However, you’ll still need to fund that trust with various assets. Funding a trust involves transferring assets from your individual ownership into the ownership of the trust. Once assets are held by the trust, they are managed and distributed according to the terms of the trust document.

So, which kind of assets can be used? Here are the most popular:

  • Business interests: If you own a business, you can transfer ownership interests, such as stock in a corporation or membership interests in a limited liability company (LLC), to the trust. This is typically used to guarantee continuity of ownership and management succession.
  • Cash and bank accounts: You can transfer cash or bank accounts into a trust's name. This can include savings accounts, checking accounts, certificates of deposit (CDs) and money market accounts.
  • Investments: Stocks, bonds, mutual funds and other investment assets can also be used to fund a trust.
  • Life insurance policies: Life insurance proceeds can fund a trust. Trustors name the trust as the beneficiary of the policy, which allows the proceeds to be managed and distributed according to the trust's rules.
  • Real estate: Real property can be transferred into a trust. To fund the trust with real estate, you typically need to execute a deed transferring ownership from yourself to the trust.

What to consider when funding a trust

First, each type of asset may require specific legal formalities to transfer ownership to the trust. For example, real estate transfers typically require the execution of a deed, and investment accounts often require completing transfer forms provided by financial institutions. Assets not properly titled in the trust's name could be subject to probate.

It's also important to periodically review and update the funding of your trust, especially as your assets and circumstances change over time. If you fail fund the trust properly, or update funding sources, that can lead to unintended consequences.

By understanding the various methods of trust funding and working with James Bart Leonardi, LLC you can ensure that your trust will achieve your goals. Take the time to fund your trust correctly to provide peace of mind and security for you and your loved ones—call our office today to get started on your comprehensive estate plan.

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