How to Fund Your Trust
It is important to properly fund your trust to ensure that your assets can be controlled by your named trustee and go to the correct beneficiary. Also, if you fund your Trust, then the assets do not need to go through probate after your death.
What is a Trust?
A trust is a contract. It is a legal document that creates a relationship between the creator of the trust and a third party, known as the trustee, in order to give the trustee the power to hold, invest, and distribute the grantor’s property for the benefit of one or more beneficiaries. The trust document also contains all the “rules and regulations” that will govern any assets that are placed into the trust.
A Trust can be created during lifetime, commonly referred to as a living trust. A trust can also be created through a Last Will and Testament, commonly referred to as a testamentary trust. This type of trust only takes effect upon the death of the testator, the individual making the Will.
Why Do You Need to Fund Your Trust?
So once I have executed my Trust, I can rest easy, right? Just put it aside like I did with my Last Will and Testament, right? No, not just yet. Before the process can be fully effective, you must fund your trust. That is to say, any assets that you want to be governed by the trust document, need to be transferred to the name of the trust.
A trust can be funded with assets such as bank accounts, brokerage accounts, stocks, and even real estate. If you have IRAs or life insurance, it is advisable that you review your intentions with your accountant and/or attorney prior to transferring these assets to the trust as they may be governed under different rules, at times making it inadvisable to transfer them to the trust. You may want to place life insurance into a Life Insurance Trust. You may also want to designate your trust as a beneficiary of your retirement accounts.
How Do You Fund Your Trust?
Is it sufficient to list the names of the assets to be included in the trust on the Schedule A page of the trust? No, that is not sufficient. While that may be helpful to alert individuals to what you may have in the trust, just being listed is not enough.
The law requires that assets be re-registered in the name of the Trust in order for the assets to be included in the Trust. In order to fund your trust, you must change the title of the assets you want in the trust.
With bank accounts and brokerage accounts, you will need to contact each financial institution and request a change of ownership form or change of beneficiary form (depending on the plan you and your attorney have created). You will need to complete these forms, indicating amongst other things, the name of the trust and the trustee’s name. Depending on the type of living trust created, you may need to obtain an Employer Identification Number (EIN) for the trust.
Once you complete the forms, the financial institution will usually open a new account with a new account number, under the name of the trust. Sometimes, the account number can remain the same. The trustee will now have signing authority on the account. In some instances, that may be yourself, or in other instances, it will be someone else.
In the case of real property, you will need to have a new deed and transfer forms completed. These transfer forms may differ depending on which county the real property is in. You also may need to contact your lender if you have a mortgage on the property as well as your homeowner’s insurance carriers.
Further, if you want to add tangible personal property such as jewelry or artwork, you can execute an assignment of tangible property.
Please note that transfers of assets to Trusts may have different types of tax consequences. Please be sure to speak with your estate attorney about the tax implications of different transfers of assets.
Once assets have been transferred to the trust, the trustee will have signing and decision making authority over the assets in the trust. If you place income producing assets and income producing real property into the trust, the income will be directed to the trust, prior to any distributions.
Do I have to do this all alone? You can if you want to, or you can have your attorney assist with the process. You can sign a letter of authorization, which will allow your attorney to obtain information about your accounts and get the necessary paperwork on your behalf.
Can you add additional assets to the trust later on? That will depend on the type of trust. Generally speaking yes, however, if for example, you have an irrevocable trust which you executed for Medicaid planning purposes, adding assets at a later date may affect eligibility. An attorney qualified in such an area should be consulted prior to you adding assets.
What If you Don’t Fund Your Trust?
If you do not fund your trust, then what? Well, in the case of a living trust, if the assets remain in the name of the individual and not the trust, then upon your death, the assets will pass according to any beneficiary, payable on death, or joint designations.
If the accounts remain individually titled, then they will pass either through intestacy or in the case of a Will, through probate, in accordance with your Will. If you do not fund your trust during your lifetime, you will not avoid probate. So, if the purpose of your executing a trust was to avoid probate, say for example, you have relatives you don’t want to know about the terms of the trust, or distant relatives whom you cannot locate but who will need to be notified in the case of a administration or probate proceeding, your plan will not be effective unless you fund that trust.
We can help you determine whether a Trust is right for you, the type of Trust you may need, and what you need to do to fund that Trust. Contact us today for more information.
For more information, please contact Estate Litigation, Guardianship, Probate and Estate Planning attorney Regina Kiperman:
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40 Wall Street
New York, NY 10005
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