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How and when do you fund a trust?

On Behalf of | Apr 1, 2022 | Estate Planning

Maybe if you have a child with special needs, so you want to start a trust to support them when they move out and after you die. Perhaps you worry that you won’t qualify for Medicaid when you get older or that your children will fight over your property.

Whether your concerns are creditor claims or taxes, a trust added to your estate plan can help you address those issues. A trust can shield certain assets from creditors’ claims and prevent your estate from becoming so large that it has to pay estate taxes. Your trust can also give you control over what happens to your property, even after you die.

For a trust to have any impact, it must have adequate funding. When and how can you fund a trust that will play an important role in your estate plan?

You can fund the trust now or when you die

Choosing when to fund the trust depends on your goals. If you want to prevent creditors from making claims against your assets after you die or when you are on a fixed income later in life, then moving assets into the trust now is a good idea.

If your goal is simply to prevent certain property from going through the probate courts or prevent the abuse of an inheritance, then you can potentially fund a trust at the time of your death. You can add transfer on death designations to specific financial accounts. You can even name your trust as the beneficiary of your life insurance policy so that funds transfer directly to the trust when you die.

What do you need to fund a trust?

Some people fund a trust with a major asset, like their home. Using the house as funding for a special needs trust can both protect the property from creditors and give a child a place to live for the rest of their life. Life insurance policies and bank accounts can also play a role in funding trusts.

How much you need depends on the goals for the trust. If the only point is to protect assets from creditors, then you don’t need to achieve specific financial goals. If you want to provide ongoing support for vulnerable family members, you may need to earmark specific amounts of assets or set investment goals for those assets so that they can return dividends annually.

Ultimately, you can use almost anything of value to help fund a trust, and you can add assets to it now and in the future. Thinking about what you hope to achieve by establishing a trust can help you decide what to use to fund it and when to start that process.