If you’ve put together your estate plan, you’ve taken a big step toward safeguarding your loved ones. But what comes next? If your estate plan includes a trust, the next step is to “fund” your trust.
Funding a trust is the process of transferring ownership of your assets from your name individually (or jointly if married) to the name of the trust. When you create a trust, you’ve created something that can hold your assets. However, for the trust to be effective, you must fund it by re-titling or re-registering your assets in the name of the trust.
By funding your trust, you ensure that your assets are governed by the terms and conditions you have set forth in the trust document. This allows you to retain control over the assets during your lifetime and facilitates a smooth transfer of those assets to your beneficiaries upon your passing, bypassing the probate process in most cases.
The specific method of funding a trust depends on the type of asset you wish to transfer. Here are some common assets and the corresponding methods for funding them into your trust.
How to title assets in a living trust
When you put an asset into your living trust, the legal name of the trust will be used, followed by the date the trust was signed. For example, My Family Trust dated June 1, 2023.
If a financial institution asks for a Tax ID number, you will still use your own personal social security number. That’s because this type of trust is a grantor trust, meaning it’s ignored for tax purposes. You don’t file a separate tax return for your living trust, nor does it have its own Tax ID number.
How to fund a trust: personal items
Your trust should include a schedule or transfer document that states items like furniture, books, clothing, jewelry, and other personal items are transferred to the Trust. These types of personal items don’t have a formal title or a deed, like a bank account or a house would have. Unless you need to list out specific items, nothing else is needed once to transfer personal items to the Trust once the documents are signed.
How to fund a trust: real estate
If you own a house, you will need to sign a new deed to transfer the property to the Trust. A common way to do this is through a Special Warranty Deed. A legal document preparer or attorney can prepare the new deed. Once it is signed and notarized, you will need to file it with your county recorder’s office. Note—each county can have specific requirements.
How to fund a trust: bank accounts and brokerage accounts
Most often, your bank accounts can be transferred to your Trust without having to open new accounts. To transfer ownership, talk with your bank about what is required.
Normally, the bank will ask for a copy of your “Certificate of Trust”. This is part of your Trust and contains a condensed summary of all the pertinent aspects of your Trust without having to provide a copy of the entire trust document.
In the same vein, if you have a non-retirement brokerage account, this can also be easily transferred into your Trust. Talk with your custodian about what forms you need to provide.
Sometimes people wonder if it’s easier to just name the Trust as beneficiary of these accounts. While this would accomplish the transfer of assets to your beneficiaries upon your death, the advantage of Trust ownership includes the ability for your successor trustee to take over if you are incapacitated.
How to fund a trust: retirement accounts
Unlike your bank and brokerage accounts, your retirement accounts must still be owned by you personally. This includes 401(k)’s and IRA’s. So, don’t try to update ownership of these accounts.
Instead, make sure your beneficiary designations are up to date. Fortunately, retirement accounts allow you to have named beneficiaries. You can either name your beneficiaries individually or name the trust. Naming the trust means the distribution will be controlled by the terms of the trust (especially ideal if your beneficiaries are minors).
Since spouses have an easier time taking over retirement accounts from each other, it’s common to name your spouse as primary beneficiary, and the trust as contingent or secondary beneficiary.
How to fund a trust: life insurance
It’s not necessary to update ownership of life insurance policies to your Trust. Like your retirement accounts, you can update beneficiaries to include your heirs directly or indirectly by naming the trust.
Obtaining new assets in the trust
A common question is, “Do I need to update my trust when I open a new account or buy a new house?” Because these things don’t change the terms of the trust, no update is needed. Any new accounts you open can be opened in the name of the trust.
You’re almost done.
Congratulations on getting your Trust in place. But don’t stop now! Without proper funding, your Trust won’t provide the value that your estate plan needs.
Still need to put together an estate plan? Speak with one of our estate planning advisors.