How To Fund A Trust

Creating a trust is a beneficial way for people to pass on assets while avoiding the potentially costly probate process. However, if a person does not fund the trust correctly or at all, the property may go through the probate court nonetheless. The result may be that the one who ultimately receives the property is not the person the deceased truly wanted to receive their assets. If you have questions about how to fund a trust, consider contacting the experienced California trust attorneys at Von Rock Law to learn more by calling 866-720-0195.

What Is a Trust?

Under California law, a trust is a separate legal entity that can receive and own property. People commonly use trusts to transfer property to someone’s loved one when they die without going through the probate process. People can fund trusts during their lifetime or have the funding occur automatically through a will, but this latter method does not apply to all asset types.

The trust holds the property based on the terms and conditions of the trust instrument. The terms of the trust typically include a triggering event permitting the property transfer to someone else. For example, a mother may create a trust that holds property for the benefit of her children until she passes away, at which point the trustee distributes the assets to the children based on the instructions.

What Are the Different Types of Trusts?

People use a few types of trusts to hold property and transfer it to loved ones outside the probate process. As the Superior Court of California explains, there are several common types of trusts, such as:

  • Living trusts. The settlor creates these while they are alive.
  • Testamentary trusts. The settlor creates this type by a term in their will, and the trust only comes into existence when the settlor passes away.
  • Special needs trusts. This trust provides for a loved one with special needs or a disability. It can be created by will or through a living trust.
  • Revocable trusts. With a revocable trust, the settlor can make any changes they would like to it without getting permission from the beneficiary.
  • Irrevocable trusts. In most cases, the settlor cannot change an irrevocable trust once they sign them.
  • Charitable trusts. These are created with a charitable purpose to benefit a group or cause in need.

People use different types of trusts to fit various circumstances in their life. What is appropriate for one person may not suit the siutation of another. 

How Do You Fund a Trust?

The methods someone uses to fund a trust depend on the applicable law and the type of asset. For example, some property types can be transferred now, whereas others cannot. Likewise, the kind of trust determines when and how someone can put property into it.

How to Fund a Testamentary Trust

Funding a testamentary trust must necessarily wait until the trust’s creator passes away. Once that occurs, under the will, the trust becomes effective and can own property. If the language of the trust and will are correctly written, then the property transfer should be straightforward.

Depending on the property type, the trust may automatically own the property. Other property types will have to be retitled in the name of the trust. The person serving as trustee should have instructions in the trust or will as to what they must do to effect the property transfer and make distributions.

How to Fund a Living Trust

In contrast, a living trust can, and typically must be funded by the settlor after they create the trust. They can fund the trust by putting the property in the name of the trust or making the trust the payable-on-death beneficiary of the asset. People can transfer real property to a trust by executing a deed with “John Doe, Trustee” or similar language.

Retitling property in the name of a trust is a significant step and, if done incorrectly, can have unfortunate consequences. One of the reasons is that the settlor who created the trust may not ever find out about the error because it will typically come to light after they pass away. If you have questions about how to fund a trust, consider meeting with an attorney at Von Rock Law for assistance.

What Type of Assets Can I Put in My Trust?

People can fund trusts with a variety of assets. That said, the method for doing so may vary depending on the asset type.

Real Property

Real property includes things like farms, houses, and vacant land. People usually fund a trust with real property in one of two ways:

  • They purchase the property by signing their name as trustee or in the name of the trust.
  • They transfer the property to the name of the trust or in their name as trustee by executing a deed.

The settlor should not encounter many issues from the property being in the name of the trust rather than an individual.

Bank Accounts

Assets like bank, retirement, investment, and Social Security accounts cannot always be retitled in the name of the trust right away. In terms of funding the trust with bank accounts, the settlor can create a bank account in the name of the trust and transfer funds into it.

They can also name the trust as a payable-on-death beneficiary of the bank account, so it will automatically go to the trust when they pass away. They can use this same method for other assets, such as retirement, investment, and Social Security accounts.

Other Tangible Assets

To fund a trust with a car, the settlor can change the title to reflect that it is in the name of the trust, not the individual. Other personal property, such as furniture, does not have a title. To transfer this property to a trust, the person typically puts a pour-over provision in the will that automatically moves their property into the trust.

Contact an Experienced California Trust Lawyer for Help

Following the proper steps to fund a trust is critical in creating an estate plan. To learn how to fund a trust, consider contacting our experienced and dedicated legal team at Von Rock Law to learn more. Call 866-720-0195 to schedule a consultation.

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