Now that you have set up your trust, the most important step is funding the trust. It is very important to transfer assets into the name of your trust, or the assets will end up in probate or conservatorship proceedings. To fund your trust, you must transfer assets, such as your house, bank accounts, and vehicles, into the trust name by legal documents such as title, deeds, and change of beneficiary to the trust name. Assets can be transferred to the trust both at the time of the creation of the trust and also at later times.
In order for your Trust to function properly, it’s not enough for you, as the Trustmaker (also called Grantor), to simply the sign trust agreement. After the agreement has been signed, you must “fund” his or her assets into the trust.
What does it mean to “fund” a trust? This refers to taking assets that are titled in the individual your name or in joint names with others and re-titling them into the name of your Trust, or taking assets that require a beneficiary designation and naming the trust as the primary or secondary beneficiary of those assets.
For example, you need to do the following to fund your trust:
- take your vehicle titles (cars, campers etc) into the license bureau and request a change of title adding TOD (transfer on death) to the trust name; and
- change the beneficiary designation on your life insurance to the trust name; and
- Bank accounts, CDs and some investments can be designated as POD (pay on death) to your trust; and
The ultimate goal of funding your trust is to insure that your property is governed by the terms of the trust agreement and not probate court. This, in turn, will allow the trustee to manage accounts held in the name of the trust in the event you become mentally incapacitated. Upon your death, your trust allows your successor trustee to more easily manage and then transfer accounts held in the name of the trust to the ultimate beneficiaries named in the trust agreement.
Transferring bank accounts and investment or brokerage accounts into your trust can be easy or complicated depending upon the rules followed by the institutions that hold your accounts. Some institutions will simply change the name on your account from your individual name into the name of your trust, while others will require you to close the original account and open a new one in the name of your trust. Suffice it to say, that regardless of the rules your institution follows, it is important to transfer your bank and investment accounts into your trust in order to properly plan for disability and avoid probate.
GENERAL STEPS TO FOLLOW TO FUND YOUR TRUST
DO NOT make your trust the beneficiary of an annuity or IRA or any other retirement account or fund due the tax consequences.
Instead list your children or other loved ones the beneficiary these accounts.
- Write a Letter of Instruction – Write a letter of instruction to your institution which requests the re-titling of your account from your name into the name of your trust. Include your account number, the name of your trust, your Social Security Number, your mailing and email addresses and your phone number.
- Deliver Your Letter of Instruction – If possible, hand deliver your Letter of Instruction to your bank or financial advisor. Take your trust documents with you because inevitably someone will ask to see your trust agreement. If you can’t hand deliver the letter, mail it directly to the bank branch where you opened your account or to your financial advisor.
- Confirm Transfer of the Account – Follow up by phone or mail to insure that the re-titling of the account into your trust has been completed. You should also check your account statements to verify that the name of your trust has been properly listed in place of your individual name. Common abbreviations to look for include: “John Doe, TTEE, John Doe TR dtd 1/1/08;” or “John Doe, TTE, John Doe Trust UAD 1/1/08.”
- Place Verification Documentation with Your Trust Agreement – Place documentation with your trust agreement which verifies the funding of the bank or investment account into your trust.
WHEN FUNDING YOUR TRUST, AVOID THE FOLLOWING:
- Probate – If any of your property isn’t titled in the name of your trust when you die, it will need to be probated.
- Ancillary Probate – If you own real estate in more than one state and you’ve failed to re-title all of it into your trust before you die, then your loved ones may be faced with probate in your home state and ancillary probate in each additional state where you own property.
- Increase in Estate Taxes – If all of your accounts are owned as joint tenants with right of survivorship or as tenants by the entirety with your spouse instead of in the name of your trust when you die, then the trust established may not be funded and you’ll be wasting your entire estate tax exemption.
- Income Tax Problems – If you fail to update the beneficiary designations for your life insurance and retirement accounts to coincide with the terms of your trust before you die, then your beneficiaries won’t be able to take advantage of important estate and income tax strategies.