What it Means to “Fund” a Living Trust

I was having lunch yesterday with a couple of guys and we got to talking about how trusts work, their benefits, and why people in Washington State might want to have a trust.

We talked about avoiding probate, making asset transfers easier after one dies, potential tax benefits, and controlling the distribution of assets to family to help ensure the money is used appropriately.

“So what’s the downside?” they asked.

“No downside,” I said, “so long as you fund the trust.”

The Importance of Funding Your Trust

As a quick recap, a trust is very analogous to a box. You can put stuff in and take stuff out whenever you want. But, for the box to hold something, you actually have to put something into it.

The same goes for a trust. Until you specifically put something into the trust the “box” is empty, and if you die with an empty box, there won’t be anything for the trust to administer.

And therein lies the problem.

Funding a trust has the same characteristics as estate planning in general — it is important but not urgent.

It’s something we know we should do but take forever to get around to actually doing it.

How to Fund Your Trust

The actual act of funding a trust isn’t extremely difficult. Like any other financial or property transaction, though, there are some hoops to jump through.

If you own a home, transferring the home to the trust requires retitling the home in the name of the trust (not as hard as it sounds).

If you have a life insurance policy and retirement accounts it’s as simple as changing the beneficiary designations on those policies (very easy).

If you have cash, stocks, bonds, etc., it’s as simple as creating an account in the trust name and transferring the money (or, in the alternative, naming the trust in a transfer on death designation).

At the end of the day, funding the trust isn’t the hard part, making the time to fund the trust is where people often slip up…


Christopher Small

P.S. Do you have kids? Have you completed guardianship paperwork? Have you done it correctly? Click here to find out what happens if you don’t do anything: Are you okay with a judge choosing the guardians of your children?

P.P.S. Do you own a business? Do you have a plan so the business, and your family, can survive if something happens to you? If not, click here to learn how simple it is to protect your business and your family from tragedy: 5 Ways to Protect Your Business from Catastrophic Failure.

P.P.P.S. Do you have no kids and think you don’t need an estate plan? Single and think a will is only for married couples. You couldn’t be more wrong. Click here to learn more: 5 reasons estate planning is a must have even if you don’t have kids.

Christopher Small is a Seattle estate planning attorney who helps people get rich and live forever. He is also the owner of CMS Law Firm LLC.

Originally published at cmslawfirm.com on August 5, 2016.