You Set up Your Trust – Now What?: An Essential Guide to Funding Your Trust

Creating a trust can be a strategic way to protect and manage assets for yourself, your family, and your beneficiaries. However, a crucial step in establishing a trust is funding it properly.  The task of funding your trust is left to you – not your estate planning attorney.  Your estate planning attorney can guide you and advise you as to which assets to transfer into the trust, and may be able to prepare some transfer documents (like deeds), but ultimately, the responsibility for funding your trust is your own. 

Funding a trust involves formally transferring your assets into the name of the trust, ensuring that your assets are legally held and managed according to your wishes.  Failure to fund your trust can not only lead to lack of protection of your valued assets, but it can actually cause the trust to fail and potentially to be deemed invalid.  A trust that is not funded doesn’t do anything – and your assets that you may have intended to transfer into your trust would instead have to go through probate. 

Here’s a detailed guide on how to fund a trust in North Carolina, covering essential steps and considerations:

Understanding Trust Funding

A trust is funded by transferring ownership of the assets from your individual name (or joint ownership, if applicable) to the trust itself. This process varies depending on the type of assets and the terms of the trust agreement. In North Carolina, common types of trusts include revocable living trusts, irrevocable trusts, special needs trusts, and charitable trusts, each with specific funding requirements and benefits. Certain types of assets that are titled in your name almost always should be re-titled in the name of your trust or directed to the trust by beneficiary designation.  For example, your investment advisors should change the paperwork for any of your taxable investment accounts to reflect your trust as the owner. Also, Change of Beneficiary Forms for life insurance, IRAs, and retirement plans should be updated in the appropriate circumstances to include such assets in your revocable trust’s distribution scheme at your death.

Steps to Fund a Trust in North Carolina

  1. Identify Trust Assets: Begin by identifying which assets you intend to place into your trust with your estate planning attorney. These typically include real estate, bank accounts, investments, business interests, vehicles, and valuable personal property. Remember, you cannot hold qualified accounts like 401Ks or IRAs in a trust, but you can name the trusts as the beneficiary of these types of qualified accounts. You may also name your trust as the beneficiary of your life insurance policy.
  2. Review Trust Agreement: Carefully review the trust agreement drafted by your attorney. This document outlines the specific instructions for funding the trust and how assets should be managed and distributed. Make sure to ask questions to your estate planning attorney regarding the funding process.
  3. Transfer Ownership: For real estate, vehicles, and certain financial accounts, you will need to transfer legal ownership to the trust. This often involves changing titles, deeds, or registrations to reflect the trust as the new owner. Consult professionals such as attorneys or financial advisors to facilitate these transfers.
  4. Re-title Accounts: For bank accounts, contact your financial institution(s) to re-title the accounts in the name of the trust. This ensures these assets are governed by the trust’s terms upon your incapacity or passing.  You may also need to update the mortgagee clause and/or loss payee clauses on your homeowner’s insurance policy if you have a mortgage on real property that you transfer into your trust.
  5. Update Beneficiary Designations: Review and update beneficiary designations on life insurance policies, annuities, and retirement accounts to name the trust as a beneficiary, if desired. This ensures these assets flow into the trust upon your death, avoiding probate and facilitating efficient asset distribution.
  6. Document Transfers: Keep detailed records of all transfers and changes in ownership. Document each asset’s transfer into the trust to maintain a clear and organized record for future reference.  This process will help to avoid any future litigation if your beneficiaries are uncertain about which assets you intended to put into your trust.
  7. Consult Professionals: Throughout the funding process, consult with estate planning attorneys, tax advisors, and financial planners who specialize in trusts. They can provide guidance on legal requirements, tax implications, and the best strategies to optimize trust funding.

Considerations for Trust Funding in North Carolina

  • Real Estate Transfers: Ensure deeds are properly prepared and recorded with the county register of deeds to effectuate the transfer of real estate into the trust.
  • Tax Implications: Understand the potential tax consequences of transferring assets into the trust, including income tax, gift tax, and estate tax considerations.
  • Special Assets: Unique assets such as intellectual property, artwork, or closely-held business interests may require specialized legal and financial advice to properly transfer into the trust.
  • Ongoing Management: Even after initial funding, regularly review and update the trust’s assets. New acquisitions or changes in financial circumstances may necessitate adjustments to ensure all assets align with the trust’s objectives.

Conclusion

Funding a trust in North Carolina is a critical step in establishing your estate plan and ensuring that your assets are protected and managed according to your wishes.  Do not make the mistake of setting up your trust and then failing to actually transfer your assets into the trust.  The whole point of setting up your trust and funding it properly is to protect your assets and avoid probate, adverse tax consequences, and potential litigation. By following these steps and consulting with trust professionals, you can navigate the complexities of trust funding effectively. Properly funded trusts offer benefits such as probate avoidance, privacy, tax benefits, and control over asset distribution, providing peace of mind for you and your loved ones.

Whether you’re setting up a trust for asset protection, charitable giving, or estate planning, thorough and thoughtful trust funding is essential to achieving your long-term financial goals in North Carolina.


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Attorney Jane Dearwester

Attorney Jane Dearwester is based in our Hendersonville, NC office. She has over 20 years of experience practicing law in North Carolina. After graduating from Duquesne Law School in Pittsburgh, PA, Jane moved to North Carolina, and later joined our team in 2023.

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Greg McIntyre, founder of McIntyre Elder Law, is more than just an attorney. As a Navy Veteran, father to six kids, and a loving husband, he values family deeply. This drives his commitment to helping clients safeguard their futures and pass down legacies.

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