For many folks, trust funding is an alienating concept. Often, when we think of trust funds, we think of privileged socialites flexing their fancy lifestyles, and while this is a reality, it represents only a sliver of the ways trusts are used. Misconceptions like these obscure the benefits that trusts and trust funding can provide to everyday families. Trust funding is a powerful way to protect however much wealth you have accrued, and secure the futures of your loved ones. It is an opportunity that should not be overlooked.
What Is a Trust?
A trust is simply a legal arrangement in which you (the trustor) give another party (the trustee) the right to hold title to assets for the benefit of a third party (the beneficiary). A trust at once may provide legal protection for your assets, and often significant tax advantages, as well. The benefits of using a trust are multiple.
What Can a Trust Do for You?
Trusts are versatile legal tools, and they come in many forms. Generally, trusts can be divided into two categories: revocable and irrevocable.
A revocable trust (sometimes referred to as a living trust) is frequently used to avoid probate court. If instead of writing a traditional will, you place your assets in a revocable trust and stipulate your distribution wishes in the trust agreement, your loved ones gain the ability to access your estate without court intervention. This not only saves time and money, but significant headache, too.
Additional uses for a revocable trust include planning for incapacity, limiting minor children’s access to their inheritance, arranging lifetime gifts for loved ones, and protecting beneficiaries from vicious spending habits, among others.
Revocable trusts do not protect your estate from federal or state estate taxes, however. By virtue of their revocable nature, trusts of this type permit the trustor to retain control of their assets and therefore do not reduce your estate’s value for tax purposes. This is where irrevocable trusts come in.
An irrevocable trust removes the trustor’s taxable assets and thus exempts them from estate taxes upon death. With the federal estate tax exemption set to drop to $5 million in 2026—and with exemptions being much lower in many states—using an irrevocable trust for this purpose is far from only a concern for the very wealthy.
How Do You Fund a Trust?
Trusts only achieve the purposes described above if properly funded. While this may sound obvious, initial trust funding is often overlooked or forgotten. Different types of assets can be used to fund a trust, and each comes with specific requirements. The most common assets for trust funding are as follows.
- Real estate transfer
- Transfer of titled personal property (cars, trucks, motorcycles, RVs, etc.)
- Transfer of untitled personal property (jewelry, collectibles, etc.)
- Bank and financial account transfer (excluding retirement accounts)
- Business interests transfer
When determining the best way to fund your trust, it is important to speak with an experienced estate planning attorney, as unforeseen tax consequences and other complications can result from an ill-informed decision. Furthermore, it’s imperative that assets acquired after your trust has been formed and funded are titled to the trust, otherwise you may create the very complications you are trying to avoid by funding a trust in the first place.
How Do You Get Started?
The first step to funding a trust is determining the trust best suited to your needs. Here, again, it is important to speak to an experienced estate planning attorney. However powerful, trust legislation is complex and rife with pitfalls.
The dedicated team at Caress Law has decades of experience guiding clients through the trust planning and funding process, and it would be our pleasure to share our knowledge. To learn more or to get started today, do not hesitate to contact us either by calling (503) 292-8990 or using the contact form on our website.