Basics of Estate Planning: Funding Your Trust


The property you own may be transferred in different ways to your heirs or chosen beneficiaries upon your death. If the property in question belongs to you and another individual, such as in the case of a residence that you own jointly with your spouse and that has a right of survivorship (JWROS), the property will be automatically transferred to your spouse upon your death. Assets can also be transferred by means of a beneficiary designation, for example in a deed of transfer to the death certificate or in a death payment account with your bank. A third possibility is that the goods go through the probate process, in accordance with your will or (in the absence of will) in accordance with the laws of the intestate.

A fourth way to transfer ownership of your assets is to use a trust agreement, such as a revocable life trust. This method offers many advantages as a choice component of an estate plan. A well-designed trust contract may be the vehicle by which your property is transferred after your death. In addition, the trust may include detailed instructions on how your assets should be managed by your designated successor trustee if you become unable to manage them yourself. However, in order to take full advantage of the benefits of a trust, you must first place your assets in trust.

When your estate planning lawyer talks about funding your trust, he talks about placing your assets in it. Let's look at some basic principles relating to this important, but often overlooked, aspect of creating a trust as the foundation of your estate plan.

What is so important in funding trust?

A well-designed trust contract is just an empty shell and has little or no value for you (the settlor) or your potential beneficiaries unless he actually owns your assets. If you die before placing your assets in the trust, these assets will likely be subject to the probate process (unless they are otherwise held in JWROS or adopted in accordance with the designation of the trust. However, any assets that are renamed to the name will be immediately subject to the management and control of your chosen successor trustee.

Should I transfer all my belongings to my trust?

Not necessarily. It is true that many of your assets should be transferred as soon as the trust has been created, including: your personal residence; stocks, bonds and mutual funds that you own in your own name; chequing / savings accounts and certificates of deposit; personal property and collectibles; business interests, such as shares in companies you own, partnership interests and membership interests in limited liability companies; and your intellectual property rights, such as patents, trademarks, and copyrights. An important aspect of establishing your trust should include a thorough review of all of your assets with your estate planning lawyer to determine which of these assets should be transferred to the trust.

Why not just transfer all my assets into the trust?

There are some asset classes that should not belong to your trust. For example, retirement accounts, pension plans and 401k accounts should not be yours. A transfer of such pension plans to your trust may very well be treated by the IRS as a taxable distribution of the entire account, and thus result in an unwanted tax borne by you. In general, you would do well to remember that estate planning for retirement plans is a complex subject that should be discussed with your lawyer.

If you own a second home, as a rental property or as a vacation home, you should also carefully consider whether the transfer of that property to the trust is advisable. Is this property subject to a mortgage that includes a "due on transfer" clause? If this is the case, your lender may treat the transfer of the property to your trust as an obligation to pay the loan in full. Again, this is an area you need to discuss with your real estate planner.

How should I proceed to transfer the assets that should be placed in my trust?

The answer is: it depends on the asset transferred. You would transfer your residence to the trust by registering a deed in the real property records of the county in which the property is located. So, for example, if you are the sole owner of the property, you (as a transferor) transfer it to "yourself as trustee of (name) trust", as the beneficiary. You will want to be careful here not to just titrate the property in the name of trust. A transfer to the John Doe Trust can not be recognized as legally effective; the transfer should instead relate to "John Doe, Trustee, John Doe Trust, pursuant to an agreement dated January 1, 2001".

Your chequing accounts, savings accounts and certificates of deposit can be transferred to your account by asking your bank to provide you with the appropriate signature cards, which will then need to be signed by the current trustees of your newly created account.

Will I have to receive new checks on behalf of the trust?

Most likely, you should not have to do this. Renaming your account in the name of trust should not affect the name of the account holder printed on your checks.

How to transfer shares and mutual funds that I own?

Assuming your shares and mutual funds are held by your dealer, you will need to ask your dealer to change the title of your personal accounts in the name of your trust. This may involve filling out a new brokerage account application. Your broker may ask you to provide proof of the existence of the trust. In this case, you will have to ask your lawyer to write a certificate of trust that you will have to sign as a constituent.

If you hold original stock certificates for a publicly traded company, you may need to open a brokerage or investment account in the name of your trust and then file the original stock certificates. from the brokerage or you may need to contact the designated transfer agent. by the company that issued the shares and follow their instructions to rename the shares in the name of your trust.

What if I have interests in a partnership or a limited liability company (LLC)?

You will need to transfer your Partnership Member or LLC interest to your trust through a written assignment of interest, signed by you and recognized by the Managing Partner or Managing Member of the LLC. You must first review the operating agreement governing the partnership / LLC to ensure that the agreement does not prevent such transfer.

Do I have to name my car and my RV on behalf of the trust?

Although you may transfer the title of your personal vehicle (s) and / or camping vehicle (s) to your trust, it may be better not to do so. If you have a vehicle accident, the fact that your vehicle bears the name of your trust may make the injured party believe that you have the pocket, which promotes a pursuit. You might be better off separating a high risk asset (such as your vehicle) from your low risk assets.

In summary, using a revocable living trust as the foundation of your estate plan will allow your property to be distributed after your death without going through the probate process. Having a trust will also allow your chosen successor trustee to manage your property in the event of disability, thus avoiding the need for an expensive process of guardianship or custody administered by a court. However, to take full advantage of the benefits of a trust, you must fund it properly. We recommend that you use the guidelines above as a basis for a thorough review of your assets and a discussion with your estate planning lawyer.

© 10/23/2017 Hunt & Associates, PC All rights reserved.

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