Ideally, when individuals or married couples create an estate plan involving a trust, the trust is fully funded before they pass away. Trust funding is the process by which assets are moved from an individual’s name into the name of a trust. Trust funding is important because many of the benefits that are provided by using a trust are not accomplished unless the assets are actually moved into the trust before the creator passes away. In some cases, however, it may be the successor trustee who is put in charge of funding a trust, especially when the trust calls for the establishment of sub-trusts.
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 examples include the following:
- Sub-trusts typically do not come into existence until after the creator of the trust has passed away. Therefore it is the trustee who must be funding sub-trusts.
- 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 follow through with funding the sub-trusts with those assets.
- Funding the Sub-trusts may be used to protect trust assets from creditors or during divorce or bankruptcy proceedings of one or more beneficiaries. These sub-trusts might not be called for unless and until the specific circumstances arise.
- 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. For example, the trust may direct that the sub-trusts be formed when the youngest beneficiary reaches the age of 25.
A specific example of how this may happen involves real estate. If an asset, such as a house in Anaheim, was never re-deeded so that it is now in the name of the trust, the trustee will have to carry out this task, assuming he is directed to do so under the terms of the decedent’s will.
Clearly, when it comes to the implementation of an estate plan, there is a lot to learn. To stay up to date, we encourage you to sign up for our free newsletter today!