Lutzel Broadway & Associates

Knowing The Law

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IS YOUR TRUST FUNDED?

Signing a living trust isn’t the end of estate planning; you also need to fund the trust. A revocable living trust that is not funded is worthless. Knowing how to fund a living trust is vital for the trust to accomplish its goals.

 Funding a living trust involves transferring property to the trust. An asset not transferred to the trust is not owned by the trust and will be subject to probate (unless you’ve used another technique to avoid probate). In short, if there is no living trust fund, there is no living trust. How to fund a trust varies depending upon the nature of the property. You can transfer ownership, or, in some cases, designate the trust as a beneficiary upon your death.

 The Trust Title

Your trust document includes has a title similar to: “The Smith Family Trust, dated January 1, 2019.”  The official name of your trust will be used on deeds, certificates of title, and assignment of interest documents, as well as on beneficiary designations.

.1. Transfer Real Estate

Transferring real property to a trust requires a deed; usually a quit claim deed. The deed needs to be executed as required by law in the state where the property is located, with the required witnesses, notary provision, recording with the appropriate agency, etc. You may need to file a copy of the trust document, or a summary of the trust called a Memorandum of Trust or Certification of Trust. This summary is preferable because it is typically one or two pages and avoids having the details of the trust document in the public record.

 2. Transfer Titled Personal Property

If personal property has a title document (cars, trucks, motorcycles, RVs, ATVs, boats, airplanes), it will be necessary to obtain a new title showing the living trust as the owner. In some states you can designate your trust as a beneficiary on a motor vehicle title, which keeps the vehicle in your name, but automatically transfers it to the trust upon death.

Caution: Ask your insurer if a transfer will affect your premiums.

3. Fund Untitled Personal Property

Personal property without a title document (furniture, books, jewelry, tools, collectibles, etc.), can be transferred with an assignment of ownership document, which must be signed and dated. A simple form for such a document is:

I hereby assign all of my right, title, and interest in and to any and all of my personal property without a legal certificate of title, both currently owned by me or acquired in the future, to my Trust.

However, we always include a provision in the Trust that includes non-titled property to be included in the Trust.

4. Transfer Bank Accounts

Your bank can tell you how savings, checking, and money market accounts can be titled in your trust. It may require closing the account, and opening a new account in the name of the trust.

If you want to do this with a Certificate of Deposit (CD), be sure that your bank won’t consider this an early withdrawal and assess penalties. You can wait for the CD to mature, then open a new CD for the trust.

5. Fund Securities

Your broker can advise you how to retitle a brokerage account, or get stock and bond certificates reissued (a complex process). A nonqualified annuity can be retitled, or the trust can be made a beneficiary.

6. Transfer Business Interests

Interests in partnerships and LLCs, and shares in a corporation, can be retitled in the name of the trust. Check the partnership agreement, LLC operating agreement, or articles of incorporation, for transfer restrictions or procedures.  A document called an “Assignment” is often times used to transfer interest in an LLC.

7. Change Life Insurance Beneficiaries

Your trust can be the owner and/or the beneficiary of a life insurance policy. Making the trust the owner allows the trustee to manage the policy in the event you become mentally incapacitated, such as borrowing against the policy to obtain funds for your care.

 8. Transfer Royalties, Copyrights, Patents, and Trademarks

Whoever pays the royalties can advise you what is required to transfer the interest to your trust. Consult the United States Copyright Office for copyrights, and the United States Patent and Trademark Office for patents and trademarks.

9. Accounts Receivable

An assignment of rights - a legal document changing who has the right to a debt - can make your trust the recipient of payments received on loans you have made to anyone (such as an unsecured personal loan or a loan secured by a mortgage).

10. Making The Trust as Beneficiary

Some assets may not be transferred to a trust, but you may be able to make the trust the beneficiary upon your death. These assets include:

Retirement Accounts. Do not retitle any qualified retirement account, such as IRAs, 401(k)s, 403(b)s, or qualified annuities; including those in brokerage accounts. This will be considered a withdrawal of the funds, subjecting them to income tax and maybe penalties. Instead, change your beneficiary designation. List the Trust as the beneficiary as long as your CPA approves the change.

Medical Savings Accounts (MSAs) and Health Savings Accounts (HSAs). Your trust should be designated as either the primary or secondary beneficiary (like a qualified retirement account).

By transferring your assets into your living trust, you bring them under the legal protection of this estate planning tool. Once the trust is funded, the assets it holds will be protected from probate in most cases and offer your family peace of mind.

Josh Broadway