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How are trusts funded?

On Behalf of | Oct 11, 2023

People putting together estate plans may decide to include a trust among their resources for a variety of reasons. Some people want to leave money for a charitable cause instead of just for family members. Others may worry about a family member’s divorce or mental health challenges reducing the inheritance that they’ll eventually receive.

Regardless of the motivation behind creating a trust, one of the most important steps in the process is funding it. The trust must have assets to distribute or manage or it fails to serve a function. There are a few ways that people move resources into a trust to properly fund it.

Planning specific transfers

The assets used to fund a trust become the property of the trust instead of the person who created the trust. Some people begin moving property into their trust immediately. Someone putting together a trust to protect assets from creditor efforts later in life or after their death may transfer real estate, financial resources and other assets to a trust immediately at the time of its creation.

Others might arrange for their life insurance proceeds to go directly into their trusts by filing paperwork with the insurance company. Some people even put together pour-over wills that arrange for the balance of their personal resources to transfer to a trust through the probate courts after they die.

Any of these strategies can help to ensure that there are enough resources in a trust to provide for beneficiaries in the future. A testator’s secondary goals and personal needs may influence both what type of trust they create and how they’ll decide to fund that trust. Creating a list of personal estate priorities may help someone more effectively structure and fund any trust they choose to create.