People create and fund trusts for a broad range of different reasons. Some people want to provide practical support for a loved one with special needs or substance abuse issues. Others want to protect their assets from liability. There are many important decisions that those establishing trusts need to make early in that process.
They need to decide what type of trust they want to form. They have to set standards for the management and distribution of trust assets. They also have to decide what resources they use to fund a trust. In some cases, the trust may exist specifically to protect certain assets. That is usually the case with a business trust or a farmland trust.
However, when the purpose of the trust is to provide support for individuals or a charitable cause, then the type of funding doesn’t matter nearly as much as the amount of funding and how the trustee manages it. How can people fund trusts intended to provide structured financial support?
With high-value assets
People don’t just move their most valuable assets to a trust to protect those assets. They might make that decision so that the trust can benefit from the value of those assets.
Having the trust serve as the owner of real property or financial accounts can help ensure that there are resources available for the care and support of the beneficiaries. People can transfer the resources immediately when they create the trust. They can also draft documents ahead of time, including deeds or pour-over wills, that transfer their assets to the trust after their passing.
With insurance proceeds
In scenarios where the goal of the trust is to provide ongoing financial support for loved ones or vulnerable people after a parent or caregiver dies, a life insurance policy could serve as the primary funding for the trust.
The policyholder can file paperwork with the insurance company designating the trust as the beneficiary. After their passing, the policy payout transfers to the trust. The trustee can then invest and distribute those resources. Such arrangements can be useful in cases where a direct inheritance could lead to misconduct or hardship.
Discussing the purpose behind a trust and the personal resources available for the trust can help people find the right solution for funding said trust. Individuals hoping to have a lasting impact on others may need to employ complex or creative solutions when establishing a trust as part of an estate plan.