Living Trusts: The Importance of Proper Funding & Other Helpful Tips

A living trust, which operates while the grantor (person who establishes the trust) is still alive, allows the grantor to control trust assets during their lifetime and names subsequent beneficiaries of trust assets upon the grantor’s death. If the grantor of the trust reserves the right to change or terminate the trust while they are living, then the living trust is referred to as a revocable (living) trust.

One of the main advantages of revocable living trusts is that they can be used to avoid the probate process. This means that upon the death of the grantor, assets in the trust won’t be distributed through traditional court proceedings as if the grantor died with or without a last will and testament (“will”). By avoiding probate, the grantor and trust beneficiaries obtain privacy because trust document(s) are not available to the public (wills are). Likewise, administering a trust is easier and quicker than probating an estate.

Inadequately Funded Trusts

In order to benefit from these advantages, though, you must ensure that your living trust is adequately or properly funded. If it is not, your descendants and beneficiaries may endure a lengthy and expensive probate, or your estate could be transferred to unintended individuals.

If a trust is unfunded it means that when the grantor of the trust dies, the trust does not legally own or hold title to the assets that are supposed to be in trust. A trust may be completely unfunded, or partially unfunded (under-funded). The way to fund a trust is by legally transferring trust assets into the trust by titling trust property in the trust’s name. This can be achieved by simply re-titling assets into the name of the trust, or assigning assets to the trust. For instance, you can transfer real estate into your trust by executing a transfer deed to the trust and having this deed recorded in the official records of the county where the property is located. To place a bank account into your trust, you can list the name of the trust and date it was established on the title to the account. Failure to assign, transfer and/or rename real property and bank accounts will result in an under-funded or completely unfunded trust.

Trust Property & Assets

In addition to adequately funding your trust, you should also list property that you intend or intended to place in the trust. Often times, this lists of assets will be attached as an exhibit or schedule to the trust documents. This listing of intended trust assets will guarantee that your intentions are identified and respected, if possible, upon your death. You will want to sign and date this list, and consider getting it notarized so that there is no dispute as to what you want.

There may be instances where transferring certain assets into the trust is ill-advised. These assets include retirement accounts and life insurance policies. Many revocable trusts do not contain provisions that permit the distribution of retirement account assets to beneficiaries over the life of the beneficiaries. Accordingly, naming the trust the beneficiary of your retirement account would result in a premature distribution of the account, requiring the payment of income taxes that could have otherwise been minimized or avoided. The solution to this problem is not transferring your retirement account to the trust; rather, you should designate named beneficiaries to and on the retirement account, itself.

The same is true of life insurance policies. If, upon your death, your liabilities/debts exceed the amount of trust assets, the life insurance policy can be used to cover the deficiency if it is a part of the trust. By designating beneficiaries on the life insurance policy as opposed to putting the policy in your trust, the beneficiaries will receive the proceeds of your policy – even if the assets in the trust are inadequate to cover your estate’s debts or liabilities.

You may also want to discuss the possibility of establishing an irrevocable trust (for your life insurance policy) with your estate planning attorney in order to minimize your estate’s tax liability upon your death.

Avoid Probate With a Trust

If you don’t fund your living trust adequately or properly designate beneficiaries, then your estate will go through probate. This process is time consuming, expensive and defeats one of the primary purposes of establishing a revocable trust. This can also lead to a distribution of your assets to unintended beneficiaries who will inherit assets according to Florida’s Probate Code. One of the solutions to this problem may be executing a “pour over” will that names the trust beneficiary of any assets you did not place in the trust before your death. A valid pour over can ensure that the trust receives any unnamed property, and then these assets can be distributed according to the beneficiaries you name in trust documents.

If you are considering establishing a revocable trust, you need the help of a qualified estate planning attorney to ensure your trust is executed correctly and is adequately funded. Attorney Jonathan M. Galler at the Law Office of Jonathan M. Galler, P.A. is skilled at handling all types of estate planning issues, and is here to help you!

Call Jonathan M. Galler, Esq. today for a free consultation at (561) 881-6912 or visit us online.


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