Funding Your Trust: Why It Matters More Than You Think
Funding Your Trust: Why it Matters
Creating a trust is an important first step in estate planning, but many people incorrectly assume that once a trust is signed that their assets are immediately protected. But in reality, a trust is only effective when it’s properly funded.
To fund a trust, one must transfer ownership of their assets into the trust’s name. Without this crucial step, your trust won’t be able to control your property or carry out your wishes.
What Does “Funding a Trust” Mean?
Funding a trust involves retitling your assets from your personal name to your trust’s name, so they are owned by the trust rather than by you personally. This includes changing titles on real estate, updating financial accounts, and reassigning ownership of business interests and personal property.
A properly funded trust allows your successor trustee to manage assets in the event you become incapacitated and distribute them accordingly to your wishes after death without court involvement.
Why Funding Matters
Funding your trust strengthens your estate plans, makes it more efficient, and helps you avoid complications. If your trust isn’t funded, your estate may still go through probate, which can delay distribution of your assets and expose your estate to unnecessary challenges.
- Avoid Probate: Properly titled trust assets generally bypass Michigan’s probate process, saving time, money, and stress for your loved ones.
- Protects Your Privacy: Trust administration is private in contrast to public probate.
- Simplifies Management: Your designated trustee can handle trust assets in the event that you are incapacitated, without needing a court-appointed conservatorship.
- Fulfills Your Wishes: Your trust’s assets are allocated accordingly to its terms.
Common Assets and Special Considerations
You can transfer almost any kind of property into your trust, including personal property, business interests, financial accounts, and real estate, but each asset type needs to be carefully considered.
Real Estate
When transferring your Michigan estate (e.g., homes, vacation properties, or investment properties) to your trust, consider:
- Maintaining your Principal Residence Exemption (PRE) for property tax benefits.
- Ensuring the transfer doesn’t trigger property tax uncapping under Proposal A.
- Notifying your mortgage lender (though federal law generally protects trust transfers).
- A Michigan Alternative: Enhanced Life Estate Deeds (Lady Bird Deeds) offer probate avoidance for real estate without trust funding and may be simpler in some situations.
Financial Accounts
Checking, savings, investment, and brokerage accounts should typically be retitled in your trust’s name. Do NOT retitle IRAs, 401(k)s or life policies in your trust’s name during your lifetime, as this can trigger severe tax consequences. Instead, these assets pass through beneficiary designations; your options include naming individuals directly, naming your trust as beneficiary, or using a combination approach with proper drafting.
Business Interests
Business ownership requires reviewing operating agreements, shareholder agreements, and partnership documents for restrictions or consent requirements.
Vehicles and Personal Property
Michigan offers Transfer on Death (TOD) designations for vehicles as an alternative to trust ownership. Personal property without formal titles (e.g., furniture, jewelry, collectibles) transfers through an Assignment of Personal Property.
What Happens Without Funding?
If you never fund your trust or only transfer some of your assets, those unfunded assets may still need to go through probate. This can result in delays in distributing your estate, increased legal and administrative costs, public disclosure of your assets and beneficiaries, and assets being handled according to Michigan’s intestacy laws rather than your trust’s instructions.
The Pour-Over Will Safety Net
Even with the best intentions, some assets may remain outside of your trust at death. That’s why your estate plan should include a pour-over will that directs any unfunded assets into your trust after death. While these assets will still go through probate, they will ultimately reach your intended beneficiaries.
How Collens Estate Law Can Help
We provide comprehensive trust funding services that include:
- Asset inventory and funding recommendations
- Preparation of deeds, assignments, and transfer documents
- Coordination with financial institutions
- Michigan-specific guidance on property taxes and Lady Bird Deeds
- Beneficiary designation review and coordination
- Business agreement analysis
- Pour-over will preparation
- Ongoing support for newly acquired assets
An unfunded trust is just a piece of paper; whereas a properly funded trust protects your legacy and provides peace of mind. Schedule a trust funding review with Collens Estate Law today to ensure your trust is properly funded and your estate plan works as intended under Michigan law.