Trustees May Be Responsible for Funding the Sub-Trusts

Related Links: Funding of Sub-Trusts During Trust Administration Implementing Credit Shelter Trusts Tax Decisions and Administering Trusts

Ideally, individuals or married couples who create an estate plan involving a trust should fully fund it before they pass away. Trust funding involves transferring assets from an individual’s name into the name of the trust. This is important because many of the benefits provided by a trust will not be realized unless the assets are moved into the trust before the creator’s death. In some cases, it may be the responsibility of the successor trustee to fund the trust, especially when sub-trusts are established according to the trust’s provisions.

Four Reasons Why a Trustee May have to go through Funding the Sub-Trusts

While a trustee may hope that all of the trust funding was accomplished prior to the settlor of the trust passing away, there are many instances where he may be tasked with this responsibility. These include:

1. Sub-trusts typically do not come into existence until after the trust creator has passed away, so it is the trustee who must fund the sub-trusts.
2. Sub-trusts may be used to preserve federal estate tax credits for one spouse. As trustee, you may have to determine which assets should be placed into a credit shelter sub-trust and then fund the sub-trusts with those assets.
3. Funding sub-trusts may be necessary to protect trust assets from creditors or during divorce or bankruptcy proceedings of one or more beneficiaries. These sub-trusts might not be established unless and until specific circumstances arise.
4. Sub-trusts could be formed under the terms of the trust to be held and administered for individual beneficiaries. Typically, these sub-trusts are not created until a specific time set forth in the trust document, such as when the youngest beneficiary reaches the age of 25.

A specific example of funding a sub-trust may involve real estate. If an asset, such as a house in Anaheim, was not transferred to the name of the trust, the trustee will have to do so, assuming he is directed to do so under the terms of the decedent’s will.

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