You have elected to create a trust, perhaps motivated by a desire for management of assets after your death, or by the cost and time savings for your beneficiaries. You have made decisions regarding how you want your assets to pass upon your death and designated a trustee to be in charge of marshalling the process along. However, this is really just the first step. In order to enjoy the full benefits of your trust, you need to fund it. Funding your trust is the process of working to coordinate your assets with the trust during your lifetime, so as to avoid probate of those assets when you die. This requires you to physically change the titles of some of your assets and change the beneficiary designations for others. Until the trust is funded it controls nothing.
If you forget to fund your trust, any assets that were solely in your name will have to pass through probate. Most likely, when you created your trust you also signed a 'œpour over will,' designed to clean up any assets that you forgot and get them into your trust, but this will mean these assets still need to go through probate. Having all or your assets titled in your trust during your lifetime can eliminate the considerable expense, as well as the delay, that is part of the probate process and allow your assets to be immediately available to the beneficiaries of the trust. See our July 2015 blog article entitled 'œWhat is probate and why try to avoid it?' for more information about the probate process.
Funding your trust is not difficult, but it does entail some work on your part. It can be helpful to create a list of your assets and work your way through the list until all of your assets are coordinated with your trust. While initially this may seem slightly daunting, it is achievable to have a fully funded trust. We have many clients who achieve this goal.
The method of coordinating assets with your trust depends on the type of asset that you need to get into your trust. This blog discusses how to generally coordinate some common types of assets with your trust, however, your particular situation may be different so it is always advisable to seek individualized advice if you have questions on how something should be titled.
For real estate to be transferred to a trust, it requires a deed. Depending on the location of the real estate, the process can vary slightly. In New Hampshire, the deed should be recorded in the Registry of Deeds for the county in which the real estate is located, and if the transfer is to a revocable trust for estate planning purposes, it will be subject to the minimum real estate transfer tax of $40. If you own real estate located outside New Hampshire you should consult legal counsel in the state in which the real estate is located to ensure that the transfer complies with local law. Additionally, while property subject to a mortgage can be transferred to a trust, it is important to understand the implications for your mortgage.
For bank accounts and brokerage accounts you can either change the title on each account from your individual name to your name as the trustee of your trust or you may leave the bank or brokerage account in your individual name and designate your trust as the beneficiary of the account. This designation may be referred to as ITF (in trust for), POD (payable on death) or TOD (transfer on death.)
If you have individual stock certificates, you will have to complete stock powers transferring the stock from your individual name to yourself as the trustee of your trust. For stock in a closely held corporation, you will have to arrange for the shares to be transferred to you as the trustee of your trust. The corporate records will have to be changed to reflect this transfer. You should consult with the attorney for the corporation to complete the necessary legal documents.
Tangible personal property can be generally assigned to your Trust, either through an assignment incorporated as a schedule of your trust or through a bill of sale. This transfers items that do not have a Certificate of Title. For items with a Certificate of Title, like automobiles, you must re-title them in your name as the trustee of your trust. For automobiles, this can be accomplished as by visiting your town clerk.
The beneficiary of life insurance should be changed to name your trust.
For qualified retirement plans (e.g. IRA, SEP, 401(k)), which are income tax deferred, care should be taken in determining the designation of the beneficiary, because of the tax consequences. The primary beneficiary of the plan should generally be your spouse, if you are survived by a spouse. A trust can be named as the contingent beneficiary of the plan, if proper language is included in the trust, alternatively an adult child or children can be named.
Finally, it is important to remember that fully funding your trust is an ongoing process. While the majority of retitling only needs to occur once, continuing maintenance is important. When you have a trust your mindset should change so that going forward you coordinate any new assets with the trust automatically. Any time you buy a titled asset you should title it in your trust. You should buy real estate directly in your trust. You should open a new account in the name of your trust and you should name the trust as the beneficiary of any new insurance policy.