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Funding a trust is as important as creating one

Posted by Lidia Law Firm, P.C. | Aug 22, 2023 | 0 Comments

Trusts can help people to navigate an assortment of different family and financial circumstances. Some people create a trust to add to an estate plan because they want to protect their resources from collection activity as they age. Others worry about whether their high-value estate will trigger estate taxes that consume a large portion of their assets. Some testators even feel concerned about how loved ones might misuse their inheritance.

Keeping certain property out of probate or changing its ownership is a possible solution for these issues, which is why people create trusts. There are many different reasons why people decide to create a trust, and there are numerous types of trusts that they may establish in the hope of protecting themselves later in life or having a positive impact on their loved ones. Putting together a trust with thoughtful inclusions is a very useful step for those who want to leave a meaningful legacy. However, the trust itself will have little value unless someone appropriately funds it.

What does funding a trust require?

A trust is essentially a separate legal creation that can manage and own certain resources instead of an individual. Therefore, the trust won't have very much influence on estate administration or someone's long-term financial security until they actually transfer assets to the trust. Many people use their primary residence as the main source of funding for a trust. Others may use financial resources or even put together instructions to have their life insurance proceeds fund the trust at the time of their death. Ensuring that there are adequate resources held by the trust will be as important as ensuring that someone creates the right type of trust and imposes the right limitations on the use of trust assets.

The resources that someone transfers to a trust will have protection from collection activity and probate claims, as well as protection against misuse by beneficiaries. The reason that someone has decided to start a trust and their personal financial resources have powerful influences on how they can fund the trust. Creating a list of valuable assets and personal legacy goals can be a useful starting point for those who think a trust will be a valuable inclusion in their estate plans.

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