After creating a trust, the first thing you must do is to “fund” it. This means you need to transfer your assets that are titled in your individual name and retitle them to the name of your trust. While most of your assets should be retitled in the name of the trust, not all assets need to be or should be transferred to a trust. Some assets may transfer to the beneficiaries automatically upon death and some assets are better off not put in the trust for tax saving purposes.
Real Property: Generally, real property should be transferred to your Trust. This is often done via a Trust Transfer Deed or a Quitclaim Deed that is recorded with the county in which the property is located.
Business Interests: If you own a business, your ownership interest should be transferred into the name of the Trust. This may be done by an assignment and an issuance of a new stock certificate or a membership certificate. Sometimes, certain small businesses have membership agreements or buy-sell agreements that provide for restrictions on transfers. Be sure to have those agreements reviewed prior to transferring your ownership interest to the name of the Trust.
Timeshares: Many timeshare companies have processes in place to transfer title to the name of the Trust. Contact your timeshare company first to determine if they have a process in place.
Personal Property: Your trust should have a general provision that assigns all of your personal property to the trust. This general assignment covers everything from your furniture, jewelry, art, automobiles and other items of tangible personal property. Vehicles of high value should be titled in the name of the trust.
Bank Accounts: Each bank has different processes to transfer title of your bank accounts to your trust. Generally, your bank will need a copy of your Certification of Trust, a document identifying the trustors, trustees, and the name of the trust. When you call your bank to make an appointment, be sure to ask which documents you will need to provide when transferring title.
Investment Accounts (Stocks, Bonds, etc.): Each investment company has a different procedure for transferring title. Just like with the bank, they will require documents to prove the existence of the trust. Be sure to contact your investment broker to determine the documents they need to transfer title.
Retirement Accounts (IRAs, 401ks, etc.): There are special circumstances regarding retirement accounts where it may not be in the best interest to name the trust as the beneficiary. By naming a beneficiary to your retirement account, it allows the funds to pass directly to the beneficiary without going through the Trust. Many retirement plans allow for inherited retirement plans which provide tax deferred savings for the beneficiary or allow the distributions to be over several years to minimize the taxes on a lump sum. It is important to know the terms of the retirement plan to determine the best options available. There are special circumstances where the named beneficiaries of the retirement account would not be able to handle the inherited funds and it is better to name the Trust as the beneficiary; however, before doing so, be sure your trust is set up to specifically handle the retirement funds.
Insurance Policies: Like retirement plans, insurance policies will have a named beneficiary allowing the funds to transfer directly to the beneficiary without going through the trust. Again, it will depend on the beneficiary as to whether or not the funds should go to the Trust or directly to the beneficiary.
What Happens if You Fail to Fund the Trust?
Without funding your trust, the trust documents are not worth more than the paper they are written on. If you fail to fund your trust, your designated successor Trustee will not be able to administer your trust.
Your trust will likely be accompanied by a “pour-over” will. This serves as a back up plan in case assets were inadvertently not transferred to the trust during your lifetime. To transfer title, the court will need to authorize the transfer of title through the probate process, which defeats the purpose of setting up the trust in the first place. This may require the entire probate process, or if there is sufficient evidence to show your intent to transfer the property to the trust, through a Heggstad petition.
Laws and requirements can change frequently and not everything may be best for your situation. If you have questions about funding your Trust, do not hesitate to contact us.