Most people choose to include a trust in their estate plan for tax purposes or to protect their assets from creditors. They may also worry about whether they can get Medicaid coverage later when they need homecare or nursing home care. Especially when the purpose of the trust is to leave a structured inheritance for someone rather than specifically protect assets, you may worry about how you will fully fund the trust.
There are many different approaches that can work, depending on your circumstances. The three solutions below are the most common means of funding a trust when planning your estate.
1. Transferring specific assets as you age
Houses and other real estate holdings are the most likely assets that people transfer to a trust. You can potentially hold property in a trust now and still retain use and control over those assets as you age. If your goals include ensuring someone’s right to stay in your marital home or protecting certain property from creditor claims, transferring those assets to a trust can be a smart move.
2. Arrange for assets to transfer when you die
Financial assets, including checking accounts and investment funds, often allow someone to arrange for a transfer to a specific beneficiary or beneficiaries at the time of death. A transfer-on-death designation keeps these accounts out of probate court.
While the beneficiaries are often individuals, instead of leaving your accounts to one or more people, you may designate a trust as the beneficiary as well. Then, the trustee(s) can complete the transfer with the financial institutions after your passing. That way, your accounts will be distributed according to the terms of your trust, which may include a complex and planned distribution.
3. Make use of your life insurance
Especially if you want to provide ongoing support for children or other loved ones, life insurance could be a means of fully funding a trust. You can work with the insurance company to either change the ownership and/or beneficiaries to the trust rather than directly to individual beneficiaries. A review of your assets, your dependents, and your goals for your trust can help you determine the best solution for funding your trust. Reviewing different estate planning tools, including trusts, will help you leave a more meaningful and lasting legacy when you die.
