Despite their usefulness as an estate planning tool, trusts are not always well understood. Some individuals may not be aware that a trust must have an appropriate source of funding in order for it to work properly.

When someone creates a trust, that individual typically re-titles all investment accounts, bank accounts and real estate into the name of his or her trust. Likewise, it is common to change a trust to the beneficiary for retirement annuities and assets.

Despite the proliferation of trusts, many are not properly funded. Often times one of the goals in creating a trust is to avoid the probate process. However, if any assets are still in the individual's name, they must be probated posthumously in order to be included in the trust. This negates one of the key advantages of using a trust. Other times individuals may decide not to use their bank accounts to fund their trusts in order to keep their children's names on their accounts to allow them to pay bills. However, some trusts allow additional signers to be added to any account.

Titling a bank account into the name of a trust also provides protection from disability, divorce, benefits and other trusts. Likewise, it allows one to escape the drawbacks of joint ownership, such as when a partner becomes angry, gets sick or dies.

Funding a trust can require ongoing attention to how one creates various accounts and other financial tools. It is important to work with an experienced professional to ensure that you create a trust that serves your unique goals.

Source: The Times Herald "Trusts need plenty of tender, loving care" Matt Wallace, July 31, 2011