You've probably heard about the importance of setting up a trust, funding it, and avoiding probate. But what do all these terms mean, exactly? How do you “fund” a trust, and why is avoiding probate so important? 

We will break down these basic Estate Planning terms and concepts in an easy-to-digest and tangible way. If you're already a client, you know what these terms mean and the importance of having a properly funded trust. Please share this article with those this might help.

A trust is a legal arrangement to manage and distribute your property and assets after you pass away. One of the most popular trust options is a revocable living trust. Being “revocable” means it can be changed or amended anytime during your lifetime. So, as your financial situation or life changes, you can do things like add or remove beneficiaries or assets, change successor trustees, change the distribution amounts for beneficiaries, or even terminate the trust altogether.

Not only is the trust flexible, but you can also choose to serve as the trustee while you're still living, meaning that you have complete control over the assets in the trust until you pass away or become disabled. Additional estate planning documents can be added, like a Power of Attorney, which allows you to choose a trusted individual to manage your financial and healthcare decisions if you become disabled.

A funded trust goes beyond a last will and testament by allowing your assets to avoid probate. After you pass, your estate will go through the probate process if your assets are in your name alone without a beneficiary designation or not held with right of survivorship, a type of property ownership giving co-owners survivorship rights upon another property owner's death. Probate is a court-supervised process of distributing your assets and paying off debts after your death. The court will be in charge of making decisions instead of having someone you choose (aka a trustee) take care of your estate.

Avoiding probate is ideal because going through the probate process takes a long time, is expensive, can go against your wishes, and can be very stressful and emotionally damaging for your loved ones to endure. If you want to know more about the probate process, click here. Avoiding probate only happens if your assets are funded to your trust. So, what does that mean?

Funding your trust is the process of changing your assets out of your name and into the name of the trust account and changing beneficiary designations to the trust where appropriate. This process happens after you and your Estate Planning Attorney create your trust. Examples of assets include bank accounts, brokerage accounts, promissory notes, businesses, cars, real estate, insurance policies, and personal property.

Your Estate Planning Attorney can help you determine what should be titled into the trust's name or kept in your name and have the trust named as a beneficiary. Certain assets must be considered very carefully, such as retirement plans and professionally licensed businesses, and discussed with an experienced Estate Planning Attorney to avoid various pitfalls.

Here are some tangible examples to understand what funding your trust looks like. With a bank account, you might have to show the bank a copy of your Certificate of Trust and instruct them in writing or in person to change your bank account from your name to your trust's name. Moving your real estate to your trust often requires you to sign the deed to transfer your interest in the property to the trust. The deed will then be recorded with the county recorder's office where the real estate is located.

You might be tempted to leave out an asset worth under $25k, thinking it isn't worth the hassle to move it into the trust. However, that “small” asset becomes a big nuisance when your beneficiaries potentially spend thousands of dollars and a lot of time and effort settling it. Each asset needs to be properly dealt with ahead of time to avoid various challenges that come up after someone passes away.

It's best to consult your Estate Planning Attorney on what to include and how to fund those assets properly. At Sundvick Legacy Center, we handle the deeds and provide our clients with detailed checklists, funding instructions, and letters of instruction to assist them in this process.

Once your trust is established and funded, it's crucial to keep it updated. Regularly reviewing your documents, especially after significant life events like a birth or death, ensures that your estate plan remains relevant and effective. This proactive approach is key to maintaining control over your assets and protecting you and your loved ones.

The bottom line is that a properly funded estate plan gives you and your family freedom: the freedom to determine who inherits what and how, the freedom to select who manages your assets and healthcare or memorial decisions if you're disabled or pass away, the freedom to update your trust as you see fit, and to provide your loved ones freedom from the court system.

If you want more information about creating your legacy by establishing your estate plan and providing yourself and your loved ones with peace of mind, contact our office today.