I get this question from a lot of clients. I admit, “funding the trust” is not something you hear in the normal course of your day (unless you’re an estate planning lawyer, of course). So here’s the explanation of what it means, and why it’s important.

A trust is a legal entity, the same way a corporation is a legal entity. Like corporations, a trust can own property. The reason why a trust can help you avoid probate is because anything owned by the trust is not owned by your estate (i.e. everything you own in your own name). Probate is required when the estate is worth more than $150,000. So, if your house, savings and investments are owned by the trust, they are not part of your estate and are not counted when deciding if probate is required.

“Funding the trust” is the technical term for transferring ownership from yourself as an individual to yourself as trustee of your trust. Once you have made this transfer, the trust is considered “funded.”

This is an important step that many people miss when they create a trust. For the trust to work, it has to have something in it, because the terms of the trust only apply to the property owned by the trust. Anything not owned by the trust is subject to the terms of your will, if you have one, and is potentially subject to probate.

Michael Jackson’s estate ran into this problem. Michael Jackson created a trust during his lifetime, but he never funded it. He did have a “pour-over will” – i.e. a will that gives everything to his trust – but a pour-over will does not prevent probate; it only directs where the person’s assets will go once probate is finished. Michael Jackson’s probate was a particularly messy one, and it’s likely that a lot of the mess and expense could have been avoided if he had funded the trust before his death.

So that is “funding the trust” in a nutshell – transferring ownership of your assets out of your name and intro the trust’s name, so that your estate stays out of probate and your affairs are wrapped up in a timely and efficient manner.

If you have any questions about how to fund your trust, or would like to create a trust to fund, you are welcome to email me at kaway@kawaylaw.com.