Properly Funding Your Living Trust
Once you create your living trust, you have to "fund" the trust. What does that mean? Many people have a living trust but it's empty...there's nothing in the trust. Putting things INSIDE your trust is known as "funding" the living trust.
Assets inside a trust are (1) governed by the trust, (2) avoid the court system and (3) are managed by those you've designated in the trust. Those people are known as your Successor Trustees.
There are several analogies that I like to use that help clients understand the concept of funding their trust:
First, I draw a circle on a piece of paper. The circle represents the living trust. Then I draw a whole bunch of X's inside the circle. The X's represent the client's assets. I explain that only the assets that are inside the circle are governed by the trust. You see, the trust only applies to assets that are inside the circle.
Sometimes I tell people to imagine that their living trust is like a bucket. First it starts out as an empty bucket. There's nothing in it. Then you have to start putting things inside that bucket. Putting things "inside the bucket" is "funding" the trust.
Another analogy I use is that of building a brand new home. Imagine you built a house from the ground up. You chose all the options, designed every room, chose the layout that suits you best. It's a beautiful home, designed by you, exactly the way you want it. Now imagine if after building this home, you got in your car and drove away and never came back. You never move into the house. You never furnish it. It's just a big empty shell. What was the point of building the house in the first place if you're not going to move into the house and furnish it? So the living trust is like this new house. You create a living trust with all the provisions you want. Now you have to "furnish" that new trust with your assets.
OK one last analogy...I promise! Imagine your living trust is like having your own airplane. You design the plane. On the side of the plane, it says "Johnson Family Trust". You are in the cockpit, flying the plane, because you are also the initial trustee of your trust (assuming you do things as most people do). Seated in first class are your successor trustees who will fly the plane if you cannot for any reason (death or incapacity). The cargo on the plane are your trust assets. If you are flying a plane without any "cargo" (i.e., assets), the plane is going to be empty when it reaches its destination and a whole bunch of folks are going to be upset their luggage didn't arrive.
So now that we know that we must put things inside the trust, what does that mean? That means you have to change the title on the asset. So instead of your home being owned by you as an individual (or couple as the case may be), it would be owned by your living trust. That would involve preparing a new deed signed by you, transferring title to your trust. The same applies for bank accounts, investment accounts, etc. You have to change the title on the asset. So instead of your name being on the bank account, your trust would be the new owner. That takes some effort. You have to visit the various banks and work with them to change title. Your lawyer should advise you how to do that.
So as we've said before many times, many people "have" a living trust. However, many of those same people haven't funded their trust. It's simply an empty bucket.
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