Trust Funding Options

Passare.com shutterstock 272955818.jpgTrust Trust Funding Options

Trusts can be categorized in several different ways:

  • Living versus testamentary
  • Revocable versus irrevocable
  • Funded versus unfunded
  • Self-trusteed versus third-party trusteed

There are several types of trusts within each of these categories.


Trusts may be created by a person either during their life, or after their death through provisions indicated in the person’s will.
Here are the different types of trusts you can select from and their funding options.

Living Trust

  • Can be created by a person during his or her lifetime
  • May be used to implement estate tax planning techniques that shelter assets from the federal estate tax with a credit shelter trust

Testamentary Trust

  • Can be created after death through provisions in a decedent’s last will and testament
  • May be used to implement estate tax planning techniques that shelter assets from the federal estate tax with a credit shelter trust

Revocable Trust

  • Can be modified or even completely revoked by the person creating the document.
  • Flexible tool for estate planning because the settlor can change the terms of the revocable trust to meet the needs of the evolving family.
  • A common advantage is that the assets in the trust avoid probate, while the settlor retains control over the property.

Irrevocable Trust

  • Cannot be changed after it is created.
  • Because it can’t be changed, it is critical that the language of the trust does what you want it to do before it is signed and funded.
  • Normally, the creation and funding of an irrevocable trust is a taxable event.
  • Irrevocable trusts are used to remove assets from a settlor’s estate through transfers of insurance or other property for the beneficiaries, who are usually younger generation family members.
  • In some circumstances, an irrevocable trust may also be used to insulate assets from creditor liability.

Funded Trust

  • An unfunded trust is a trust with some nominal property typically $1.00 as its assets; since some type sort of corpus is typically required to have a valid trust.
  • Unfunded trusts become funded when a decedent dies and the property passes to the trust through the will.
  • The property that is ultimately transferred into the trust must first pass through the probate process to get into the trust.

Unfunded Trust

  • A funded trust has assets beyond than the nominal $1.00 titled in the name of the trust.
  • Revocable trusts can be funded with assets any time. There are varying reasons to fund a trust during life, rather than waiting to fund the trust through provisions in your will. For example, an individual may fund a trust if they want the trustee to manage the assets placed into the trust.
  • Self-trusteed trusts are funded if the settlor (who is also the trustee) wants to avoid the probate process to transfer those assets at the death of the settlor

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