How to Fund Your Trust
How to Fund Your Living Trust
In order to ensure that your assets are governed by the terms of your trust agreement, you will need to properly fund your living trust. Funding a trust is merely the procedure of taking the assets you currently own and transferring, or changing, ownership of those assets to your trust.
The Basics of Trust Funding
Simply drafting and signing your trust agreement is not enough to protect your assets. You will need to add assets to your trust in order to fund it and make it work. To better understand the concept of trust funding, think of your living trust as a bucket. When you create a trust, the bucket is empty, and you will need to place assets into the trust in order to “fill” the bucket.
Exactly how to go about funding your trust will depend on the type of property being allocated to the trust. There are three primary assets that are usually assigned to a living trust – real estate, financial or investment accounts, and business entities. The types of assets each have their own methods to effectuate the trust transfer.
Funding Your Trust with Real Estate Holdings
Since real estate is typically a high-value asset, it is arguably one of the most important pieces of property to add to your living trust. Transferring real property to your trust will allow your family to avoid probate and will enable quicker and easier administration of the property upon your death.
In order to transfer real property to your trust, it is imperative that a new deed is drafted which transfers title of the property out of your individual name and into the name of your trust. This can be done through a quitclaim or grant deed which is recorded with the county recorder’s office.
Your current deed may read “John and Jane Doe, as joint tenants.” However, in order for your property to be sufficiently transferred to your trust, you will need to change the name on your deed. Your new deed will need to read “John and Jane Doe, Trustees of the Doe Family Trust.” By re-titling your real estate to the name of your trust, your property transfers to your trust and therefore becomes subject to the administration and distribution terms of your trust agreement.
Funding Your Trust Through Financial and Investment Accounts
Another way to fund your trust is by assigning bank accounts, stocks, bonds, and any other investment accounts to your trust. You will need to use a certification of trust in order to set up this type of transfer. A certification of trust is usually a three-page document which briefly outlines the terms of your trust. The trust certification contains information such as the name of the trust, the date of the trust, the settlors, and the trustees.
The transfer of financial accounts into your Living Trust can be accomplished quite easily. To transfer a financial account, you will need to provide your bank with a fully signed copy of the certification of trust. The bank representative will know exactly how to complete the transfer. Depending on the financial institution, you may be required to complete additional paperwork to effectively arrange the transfer. Generally, you will not have to open new accounts to replace the existing accounts; the only change will be the name of the account holder. However, every institution is different, and some banks may have differing procedures.
Once the certification of trust and any other necessary paperwork is processed, you will begin receiving new account statements which list the name of your trust as the account holder. This is how you will know that funding has taken place and that these accounts were successfully transferred to your trust.
Assignment of Business and Corporate Interests
If you own an interest in an LLC, corporation, or other entity, then you will also need to transfer ownership of these entities to your trust. Almost any type of business interest can be generally transferred to the Trust by an “Assignment of Business Interest.” This document assigns all property and assets owned in the name of the business into your Trust so that these interests will avoid probate.
However, there may be specific issues with the transfer of interests in LLCs and other entities. The transfer of a business interest to a trust may require advance approval. Therefore, it is important that prior to the transfer, you review the business’ operating agreements and other corporate documents to confirm that this type of transfer is permitted. Typically, consent will be granted after the company has reviewed the certificate of trust and after the appropriate assignment documents have been executed.
What Happens if Your Trust Isn’t Funded
As mentioned earlier, creating and signing your trust documents is only one small step in setting up your trust. You will need to fund your trust by correctly re-titling and transferring ownership of your assets to your trust. Without funding, your trust is nothing more than a piece of paper or an empty bucket.
If you do not incorporate your assets into your trust, or improperly transfer your assets, then your family can experience a plethora of challenges in administering your estate. Inadequate funding may mean that your estate will go probate upon your death, and your assets may not pass to your intended beneficiaries. Or, if your trustee cannot access your property because it is not part of your trust, then your family may have to initiate conservatorship proceedings to manage any of your assets not held in trust.
Protecting Your Trust Assets
I’ve seen first-hand how families are harmed by ineffective trust funding. Consulting with an experienced estate planning attorney will ensure your estate is properly managed and your trust is adequately funded. Contact my office today at (310) 800-2911 to schedule a strategy session with me.