A common estate planning error that people in Maryland may make is creating a trust but failing to fund it. It is not enough to just do the paperwork to set up a trust. You need to place assets in the trust as well.
How to fund a trust
A trust can perform a number of functions, including protecting assets and allowing the trust creator to specify how and when assets are distributed. It can be a powerful tool in estate planning, but it must be implemented correctly. The process of funding it will vary depending on what the assets are. For example, if you want to place a bank account in a trust, the bank itself may have specific rules for how this is done. You might need to open a new account in the name of the trust.
For bonds, brokerage accounts and stocks, the process also varies, and your broker should be able to advise you on how to proceed. For titled property, you can set up a new title with the trust as the owner. You may need a document called an “assignment of property” that names the trust as the owner. You might need a quitclaim deed to transfer real estate ownership into a trust. For retirement accounts, life insurance policies and other assets that are transferred by beneficiary designation, you can name the trust as the beneficiary.
Consequences of failing to fund trusts
If you fail to fund the trust correctly, there could be a number of consequences depending on your assets and your family situation. The assets might have to pass through probate. If the estate is a very valuable one, there could be estate taxes. Assets might not be distributed as you intended, and your family could end up in a prolonged court battle over them.
A revocable living trust can be changed or even withdrawn by the creator, and assets can be moved in and out of it over time. Therefore, it is important to understand this process and to make sure that the trust remains up to date.