Trusts are not as common as wills, but more people use them now than in years past. Many people now recognize that a trust can benefit those with unusual family circumstances, not just those with millions of dollars of personal property.
Unless someone is already independently wealthy, properly funding a trust can be as challenging as including the right terms for the distribution of trust resources. A trust only has authority over the resources transferred to it as funding.
How can a Colorado testator ensure that they have properly funded a trust intended to support their loved ones later?
Using one’s most valuable resources
The simplest way of funding a trust involves transferring personal assets to the trust when creating it. Many people choose to use a trust to hold the deed for their primary residence, for example. People may also transfer other valuable assets, including an ownership interest in a business, to a trust. Trusts can theoretically hold just about any kind of property, ranging from financial accounts to vehicles. People may have to give up some degree of control over those assets depending on the type of trust they create and who serves as trustee.
Arranging for posthumous funding
There are three primary ways for people to arrange to fund a trust at the time of their death. The first involves using life insurance proceeds to fund a trust. The trust can be the beneficiary listed on the paperwork with the life insurance company, thereby ensuring that the trust and not a specific beneficiary will receive the payout from the policy.
The second solution for posthumous funding is the use of transfer-on-death designations. People can file paperwork with financial institutions to have accounts transfer to the trust or other individuals after their death. The third solution involves drafting a pour-over will that transfers either specific assets or the remainder of someone’s estate to the trust during the probate process.
Many people choose a combination of advance funding while they are alive and posthumous funding after their deaths to maximize what resources the trust controls and how much impact it may have on beneficiaries. Yet, ultimately, reviewing one’s personal resources and estate planning goals with an attorney tends to be wise before committing to any particular funding strategy.