In order for a trust to be effective, it must have assets. The process of transferring assets into a trust is called funding. Funding is a crucial step in trust formation.
First, one of the primary goals of a trust is to avoid the delay and expense of probate. Assets that are outside the trust may be subject to probate and thus defeat the purpose of the trust.
Second, a trustee can only administer assets that are in the trust. The trustee has no authority to administer non-trust assets.
Finally, assets outside of the trust are not subject to any restrictions regarding to whom or when they are transferred. For these three reasons, as many assets as possible should be within the trust. Another important purpose of a trust is to set out rules and specify the beneficiaries to your assets. Unless the trust is funded, those assets are not subject to your desires as expressed in your trust documents.
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