There are many different kinds of trusts that can serve numerous different estate planning purposes. There are spendthrift trusts to prevent someone from squandering their inheritance and special needs trusts to provide support for a loved one with medical issues without cutting them off from state benefits.
Every trust is a unique creation that reflects the needs of the beneficiaries that it has been designed to support. In addition to establishing rules for the distribution of trust resources, it is very important for someone who is creating a trust to fund it properly by moving assets into the trust. These are some of the more common ways for people to fund trusts so that they have assets that will have a genuine impact on the lives of their beneficiaries.
With real property and investment resources
Sometimes, those creating a trust want to protect their assets from lawsuits, divorce or issues in probate court after they die. Moving particularly valuable property to a trust can fund the trust and help protect those assets from litigation and probate proceedings. Those who have sizable personal assets may choose to fund the trust with those assets during their life to maximize the protection they derive from its creation.
With life insurance
Often, especially if someone creates a trust for the support of children or other dependents, they will make the trust the beneficiary of their life insurance policy. Then, when they die, the payout on their policy funds the trust. This approach can be particularly effective for those who don’t have significant assets in their name yet or who prefer not to change the ownership of certain resources like their primary residence.
With a pour-over will
Some people simply want the trust that they create to control the property they leave for others when they die. If that is the main intention of the trust, then a pour-over will can be the simplest way to fund it. The will provides instructions to transfer certain property directly into the trust when the testator dies. The assets in the trust can then bypass probate proceedings.
The more assets someone uses to fund a trust, the greater the long-term impact that trust could potentially have on its beneficiaries. Having an appropriate plan to fund a trust can be as important as the creation of a trust itself.
