Learn how to fund your trust to achieve your goals. Also, learn what assets you should not transfer into your trust.
The estate planning process doesn’t end with the signing of a living trust. A trust must be funded. It is crucial to know how to fund a living Trust in order for it to achieve its goals.
A living trust fund requires that property be transferred to the trust. If an asset is not transferred to the trust, it will not be owned by the trust. It will also be subject to probate unless another method has been used to avoid probate. In other words, a trust that does not have a living trust fund is not able to exist. The nature of the property will determine how to fund a trust. You can either transfer ownership or designate the trust beneficiary upon your death.
1. Transfer Real Estate
A deed is required to transfer real property to a trust, usually a quitclaim deed.
The deed must be executed in accordance with law in the state where property is located. It should include witnesses, notary provisions, recording with appropriate agencies, and any other required documentation. A copy of the trust document or a summary of it, also known as a memorandum or certificate of trust, may be required. It is usually one to two pages long and does not include the trust documents details.
You may need permission from the lender or the association if your property is subjected to a mortgage or homeowners association.
Be aware: Real property transfers usually result in a transfer fee and other fees. Some states allow the transfer of a living trust without charge, while others charge a nominal fee. Others consider the sale to be at the full market value and assess all taxes and fees. Some states offer a homestead exemption, which results in lower annual property taxes. Others limit the amount of property tax increases each year. It is important to ensure that the transfer doesn’t result in substantial fees or remove such tax increase or homestead protections.
2. Transfer Titled Personal Property
Personal property that has a title document (cars and trucks, motorcycles or ATVs, boats, planes) will need to be re-titled to show the living trust owner. You can name your trust beneficiary on a motor vehicle title in some states. This keeps the vehicle in your hands, but transfers it to your trust when you die.
Be aware: You should check if the transfer of ownership could result in significant taxes or fees. Get the lender’s approval if the vehicle is subjected to a lien. Ask your insurance company if the transfer could affect your premiums.
3.Fund Untitled Personal Property
You can transfer personal property without a title document. This includes furniture, books, jewelry and tools. An assignment of ownership document must be signed and date in order to transfer personal property.
It is essential to accurately describe the property so that it is clear who owns it.
4. Transfer bank accounts
Ask your bank for information about how checking, savings, and money market accounts are titled in your trust. This may mean closing the account and opening a new trust account.
This can be done with a Certificate Of Deposit (CD). However, your bank will not consider it an early withdrawal or assess penalties if you do so. The CD can be reopened after it matures.
5. Fund Securities
A broker can help you retitle your brokerage account or reissue stock and bond certificates (a complicated process). You can retitle a nonqualified annuity or make the trust a beneficiary.
Caution: Brokerage accounts that qualify as retirement accounts should be reviewed in the section on Retirement Accounts.
6.Transfer Business Interests
You can retitle interests in LLCs and partnerships, as well as shares in corporations, in the trust’s name. For restrictions on transfer, refer to the articles of incorporation, LLC operating agreement, and partnership agreement.
7.Change Life Insurance Beneficiaries
A life insurance policy can be owned by your trust, or you can make it the beneficiary. The trustee can manage the policy if you are mentally incapacitated. This includes borrowing against the policy to pay for your care.
Attention: Cash value policies are exempted from creditors in many states, but only if they are owned by an individual. If ownership is transferred, creditors could lose protection. You could instead use a power to authorize someone to manage the policy.
8. Transfer royalties, copyrights, patents, and trademarks
The person who pays the royalties will be able to advise you on how to transfer the interest into your trust. For copyrights and trademarks, consult the United States Copyright Office and the United States Patent and Trademark Office.
9. Gas, Oil, and Mineral Rights
These rights can be of different types. A deed can be used if the rights are part or all of your property. An assignment of rights document is required if you have rights in property that you don’t possess or have a lease agreement or royalty agreement. To make the necessary changes, contact the person who paid you. It may be necessary to record the document. This area is complex, so it may be a good idea to contact an attorney.
10. Accounts Receivable
A transfer of rights, a legal document that changes who is entitled to a debt, can allow your trust to receive payments on loans you have made to someone (such as an unsecured personal or mortgage loan).
11. Making The Trust as Beneficiary
While some assets cannot be transferred to trusts, you might be able make the trust the beneficiary in the event of your death. These assets include:
- Retirement accounts. Retitle qualified retirement accounts, such as IRAs and 401(k),s or 403(b),s. This includes brokerage accounts. This is considered a withdrawal and could result in penalties or income tax. Change your beneficiary designation instead. Your tax situation and tax laws will determine whether your trust should be the primary beneficiary or secondary beneficiary.
- Health Savings Accounts and Medical Savings Accounts are both available. Your trust should be designated either as the primary beneficiary or secondary beneficiary (like a qualified pension account).
You can transfer your assets to your living trust and bring them under the legal protection offered by this powerful estate planning tool. The trust will protect your assets from probate once it is funded. This will give you and your family peace-of-mind.