I Had A Trust Created, Now What?

You hired an attorney, went through the planning process, made those difficult decisions about who would be trusted and where your assets would go. Now that everything is signed and recorded you are all set right? Not quite.  Before placing that portfolio on the shelf, you still have one major task to complete.

It may come as a surprise but most people do not realize that when you go to an attorney to have a trust created and the documents are executed, or signed, that isn’t the end. Creating a trust is a two-part process. The attorney’s job is to help plan, draft the documents, and ensure the execution is completed properly.  But unless you have hired an estate-planning attorney on an hourly basis, when you pay for a trust at a flat fee, the funding is left up to you. This should be discussed prior to drafting, but sometimes it comes as a surprise. Most attorneys will include instructions on how to fund the trust but when it comes down to the funding process, it is often overlooked. Disregarding the funding of the trust is detrimental to your estate plan because funding is what brings your trust to life. Without it, your Trust is no more useful than a basic will.

The good news is – this is 100% preventable. The other good news is, your wishes are still documented. The problem is, when you pass away your successor trustee will have the task of probating your estate. That means gaining access to real property, bank accounts, retirement accounts and the like. This takes a lot of time, out of pocket expenses for your trustee to hire an attorney to settle your estate, and a court process that is a matter of public record.  Instead of the process being automatic, the process has become painstaking for your loved ones and your estate becomes open to litigation. I bet by now funding the trust is starting to sound pretty important. And it should because not only it is important but imperative.

So what is funding the trust exactly? It is the process of effectively transferring your assets into the name of the trust.  Once you fund your trust, you will have the same flexibility to handle your assets the same as when they were owned in your name individually. The only difference will be that you will own your assets as Trustee for yourself since the Trust will be administered solely for your benefit during your lifetime.  The process is rather simple but it does take a little organization and time.

The process of funding depends on the type of asset.

  1. Real estate that is your residence, for example, is a matter of drafting a warranty deed to transfer title from you individually into the name of the trust. Once it is recorded, that process is complete. No, recording the deed under your trust will not accelerate any payments on loans. Acceleration on any outstanding indebtedness on your personal residence by virtue of a transfer to a Revocable Living Trust is prohibited under federal law.
  2. Real estate that is not your residence but encumbered by indebtedness (deed of trust, or mortgage) may be affected by transferring the name into the trust. The preventative measure on this item is to contact the financial institution holding the mortgage or deed of trust and get permission to transfer the deed into the name of the trust. Prior approval is key to avoiding accelerated payments.
  3. Bank Accounts and Savings and Loans have a simple procedure. Show the individual at the financial institution your passbook and name of the trust. Occasionally, depending on the financial institution, they may require a copy of the trust. Your attorney should provide you with a full copy of the trust in addition to the original in a binder or portfolio. Depending on how much money you keep in your regular checking account, you may wish to leave the checking account out of the trust and merely place a transferable on death designation or payable on death designation to your beneficiaries. But all other accounts should be held in the name of the trust.
  4. Stocks and Bonds will be funded depending on whether they are privately or publicly held.
  • Privately held stocks or bonds can be accomplished simply by having new stock certificates prepared in the name of the Trust and surrendering the prior stock certificates.
  • Publicly held stock has a more complicated process and it will be necessary to work through a stockbroker or through the institution from which the assets were purchased.
  1. Life Insurance Designations cannot be transferred into the trust. Instead, the trust should be named as the beneficiary of your life insurance proceeds. A significant exception to this would be if you have children or an ex-spouse from previous relationships. You may want to designate a particular life insurance policy for their benefit.  In that case, the beneficiary designation will simply name that individual directly.

There are many more categories of assets that can be transferred into the trust. The above are the most common. While it may seem like a large task, when taken asset by asset it really isn’t difficult.

The bottom line is that you need your trust to work effectively. Without proper funding you are forfeiting the benefits of your trust and placing a large burden on your loved ones. Remember to revisit when assets change, life circumstances shift, and time passes to make sure your trust is still operating as you intended it to.

Site Updates in Progress. Thanks for your patience!