How Do I Fund a Trust In Michigan?

Trusts and other estate planning tools can be confusing and intimidating, but it is important to understand the purpose of these instruments, and how to ensure that the components of your estate plan operate as they should. Not everyone wants or needs a trust, but when a trust is the best choice for your estate plan, creating that trust is only the first step.  Funding that trust is the next necessary step.

At Bassett Murray Law Group, we want our clients to not only have the best estate plans to protect themselves and their families but also to know how to use the plans as intended, both during their lifetimes and after their deaths. We work to help clients fund their trusts and ensure that the funding remains adequate in the future. While every trust has different needs, we can explain some of the general steps involved in funding a trust in Michigan.

What Does Funding a Trust Mean?

Funding a trust means transferring assets from your ownership into the trust. A trust is really, in effect, only an empty container, until you transfer property into it.  Without those assets, the trust cannot fulfill its purposes because there is nothing in it to be managed or distributed from the trust, whether to the trust owner or to other intended beneficiaries. 

Different trusts have different purposes, and for that reason you should discuss with your estate planning attorney which assets need to be transferred to ensure your trust is fully funded. The most popular form of trust, a revocable living trust set up to avoid the need for probate, is fully funded when you transfer in all assets that would otherwise become part of an estate subject to probate, whether in Michigan or elsewhere. But other trusts would be funded differently. A third-party special needs trust, for instance, would be fully funded when you transfer in sufficient assets to provide the resources necessary to meet the needs of the intended beneficiary. 

Which Assets Should You Transfer?

The first step in funding a trust is to identify which assets to transfer into your trust. Typical assets include real estate, bank accounts, investments, personal property, and retirement accounts. They are handled differently:

• Real Estate: You’ll need to transfer ownership of any real estate properties, such as your homestead, your vacation home, etc. via new deed to make the trust the owner.
• Bank Accounts: You will need to follow the bank’s instructions to re-register accounts in the trust’s name. 
• Investments: You may need to designate the trust as beneficiary to that account to ensure that the assets transfer to the trust upon your death.
• Personal Property: You will transfer items to the trust through an assignment document or other specific steps based on Michigan laws and the value of the items.
• Retirement Accounts: Because of tax laws, it is often not advisable to transfer ownership of these accounts into a trust but instead to make use of beneficiary designations. 

Other Considerations

When funding a trust, practical matters like liquidity, tax consequences, and how to manage trust assets over time are important considerations. For instance, if you are funding a trust that will be making regular cash disbursements to one or more  beneficiaries, it would make sense to include some assets that are liquid or can be liquidated easily. If you fund the trust entirely with real estate, the trustee might have to sell the property to make disbursements. Then too, real estate itself implicates maintenance costs, property tax payments, and other expenses that the trust will not be able to pay if its assets are limited to the real estate only. Working with your attorney and financial advisors can help address these matters and ensure  that your trust is prepared to meet your goals.

Updating Beneficiary Designations

As part of the estate planning process and trust funding, you will need to review and update beneficiary designations on retirement plans, life insurance policies, and annuities. It is a good idea to discuss with your estate planning attorney whether it makes the most sense in your situation to name the trust as the beneficiary or to just designate the same beneficiaries as those specified in the trust on the individual accounts and policies. 

Contact Our Firm for Help

As you can see, funding a trust can involve complicated legal and financial details and requires thoughtful consideration. It’s important to get help from an experienced estate planning attorney.  At Bassett Murray Law Group, we’re dedicated to helping you and your family succeed with all aspects of estate planning, including trust funding.  If you’re thinking about setting up a trust or need help with an existing one, we’re here to provide professional guidance and support. Contact us today to schedule a consultation and take the first step toward securing your legacy.   You can call our Ann Arbor office at  734-930-9200 or our Petoskey office at 231-427-2292. You can also visit our website or contact us online.