Living trusts have become increasingly common in recent years as estate planning clients in Colorado and throughout the United States have come to realize their benefits. A primary advantage of a living trust is that it allows assets that otherwise would have gone through probate to pass outside the probate process. Living trusts are an excellent way to streamline the distribution of assets, getting them quickly into the hands of people intended to have them, with no court involvement.
What many people don’t realize, however, is that simply creating a trust for their beneficiaries isn’t enough. In order to carry out its purposes, a trust must be funded. What exactly does that mean?
How to Fund Your Colorado Living Trust
Funding a trust simply means making sure that your assets are titled in the name of the trust, and not in your own name. If you have a revocable living trust for which you are the trustee during your lifetime, there is no practical difference in your life. You’re still in charge of the assets and how they’re managed. The difference is that if you become incapacitated or die, there doesn’t need to be any complicated maneuvering to make sure your assets are dealt with appropriately; your successor trustee simply takes over, managing and distributing the assets according to the terms of the trust.
Some of the assets you may want to re-title in the name of the trust include real estate, vehicles, investment and brokerage accounts, and bank accounts. Some assets, like art collections and jewelry, may not have titles as such. With such assets, you can assign ownership to the trust.
Many people use life insurance policies to fund a living trust. The beneficiary of the policy is the trust, rather than individual beneficiaries. This allows you, the grantor of the trust, to control how the proceeds of the life insurance policy are managed and distributed. If you have any concerns that your beneficiaries might not manage or spend the money prudently, having your living trust be the beneficiary of your life insurance policy is a wise idea.
Most people who have Colorado living trusts also have “pour-over wills.” These documents do exactly what you’d imagine from the name: they “pour” assets that are held outside the trust into the trust. This serves as an extra layer of protection, so that you don’t have to constantly update your trust or worry that after-acquired assets are not included.
Benefits of Funding Your Colorado Living Trust
The obvious benefit of funding your Colorado living trust is that the assets contained in the trust will not need to go through probate. There are other benefits as well. A significant one is avoiding the complications that result if an asset outside your trust needs to be managed by your trustee. If an asset is not held by the trust, the trustee does not have authority to deal with it. Having the asset in your trust, by contrast, means a seamless transition in management from you to your successor trustee.
Another important reason to fund your living trust is that assets held outside of the trust may not go to your intended beneficiaries. If an asset is held jointly, like a bank account, or has a beneficiary designation, like a payable-on-death account, the asset will go to the co-owner or to the person named on the beneficiary designation.
Funding a trust may sound intimidating, but it doesn’t have to be. Contact the experienced estate planning and probate attorneys at Davis Schilken at 303-670-9855 to arrange a consultation at one of our two locations in The Denver Tech Center and Golden, Colorado. Our attorneys can walk you through what you need to do to fund your Colorado living trust. We look forward to working with you.