Category: Executor/Trustee Issues

Creating your Trust is just the first part of the Estate Planning process. After you sign your Trust document, the next step is to fund the trust. The method of funding a trust involves transferring assets to it. 

Tips for  Funding a Trust 

This guide is meant to serve as a helpful starting point for the basics of funding a Living Trust. It is not intended to cover every possible situation, and it would be impossible to do so. 

Your particular assets may have other requirements that this guide does not cover. For example, — Some partnerships require you to give notice to other partners before making any transfers. Such a condition might apply only to your partnership (not all partnerships), so it may not be mentioned in this guide. 

Some specifics and details for funding a Trust may change over time. For example — If your Trustee changes, that would likely affect how you would title assets held in your Trust. 

This guide is intended to be a useful reference, but it is not legal advice, and there may be issues not covered. You should consult an Estate Planning attorney if you have specific questions.

How to Title Assets in Living Trusts

Funding a Trust means you will transfer ownership of specific types of assets to the Trustee of the Trust. This is generally done by transferring assets to: 

Trustee Name, as Trustee of the Trust Name  If you have multiple trustees, this could look like: 

Trustee One Name and Trustee Two Name, as Trustees of the Trust Name 

Taxpayer Identification Number (TIN) in Living Trusts

Your Trust is designed to be a “Grantor Trust,” virtually ignored for tax purposes. Assets held in a Grantor Trust are still treated if the Trust creator owns them for tax purposes. This generally means there’s no difference in income tax reporting. Everything is reported just as it was before the Grantor Trust was created. 

A Grantor Trust uses a social security number of the Trust creator as the Taxpayer Identification Number (TIN) for the Trust. For a Joint Trust, either spouse’s social security number can be used (though it’s best to be consistent and always use the same number). 

How to Fund a Trust: Personal Property & Assets without Deeds or Titles 

Most assets do not have formal titles or deeds. This can include things like clothing, furniture, jewelry, electronics, etc. While there’s no legal title, it’s still important to transfer these assets to the Trust. This is usually quickly done by signing a general transfer document that states the property is now owned by the Trustee. Just keep this document with the Trust records. 

The transfer document should list assets you’re transferring to the Trust. It’s good to be specific, but you can use broad categories (like “furniture,” “clothing,” “jewelry,” etc.) without listing every item in each of those categories. Suppose you have any assets listed explicitly in the Trust (such as an item marked as a gift) or precious assets. In that case, it might be worth listing those individually rather than relying on a broad category. 

Once the transfer document is signed, keep it with the Trust records. 

How to Fund a Trust: Bank Accounts & Other Financial Accounts 

Property owners can transfer most bank accounts and financial accounts to their Trust. Each bank has its process, so check with yours for information on policies. 

Here are the general steps to funding a Trust with bank accounts and other financial accounts: 

1. Contact your bank to see what’s required to transfer your accounts to the Trust. Your bank will provide any necessary forms.
2. Complete, sign, and return forms to your bank. Some banks ask you to complete a “Certificate of Trust” form to provide some details about the Trust. Some will require a complete copy of the Trust.
3. Have the bank change the title to the Trustee of the Trust. As described in the “How to Title Assets” section above. Most banks can change the ownership to the Trust and keep the same account numbers, but some may require new account numbers.

How to Fund a Trust: Real Estate 

Transferring real estate to your Trust typically requires signing a deed to transfer your interest in the property to the Trust and then recording that deed with the county. 

The process varies a little by state, and each county can set its requirements for how to format a deed, record a deed, and whether any other paperwork must be filed with the deed. Your County Recorder should provide more information on these requirements, and they can often offer a blank deed template. Most states recognize several types of deeds, but “Quit Claim Deeds” or “Trust Transfer Deeds” are most commonly used to transfer property to a Trust. 

While processes may slightly differ, here are the general steps to funding a Trust with real estate:

• Check with your County Recorder for any specific requirements for deeds. The county record should detail any formatting requirements (or provide a template) and explain any other paperwork required with a deed.
• Complete the deed by listing the Trustee of the Trust. As described in the “How to Title Assets” section above, the Grantee (the person who receives the property). A copy of the prior deed may be helpful and can also be obtained from the County Recorder.
• Complete any other paperwork required for your county. Additional paperwork is often needed to identify any Beneficiaries of the Trust. While you are living, you are the Beneficiary of your Trust.
• Record the deed and file any other paperwork with the County Recorder. Deeds may be recorded in person at the County Recorder’s office or by sending the original deed by mail. Your County Recorder can provide more guidance.

Special Note on Mortgages & Deeds 

Many mortgages and deeds of a Trust include a “due-on-sale” clause saying the entire balance is due immediately if the property is transferred. Federal and state laws say that these due-on-sale clauses are not triggered by moving most residential real estates to most Trusts. 

This may also be relevant if you refinance your mortgage. Many lenders require you to take the property out of the Trust to refinance but then allow you to put the property back in the Trust after the refinancing is complete. It’s an unnecessary complication but something many lenders do require. 

As always, there are some exceptions, so it’s a good idea to contact your lender before the transfer. Requesting written confirmation that the transfer will not violate any Trust’s mortgage or deed terms is always a good idea. 

Special Note on Insurance Policies 

Most insurance policies related to real estate (fire, casualty, liability) automatically cover property transferred to a Trust. However, it’s still a good idea to check with your insurers about your policies to see if any additional endorsements or updates are needed in connection with the transfer. 

How to Fund a Trust: Business Interests

Business interests come in many forms, and there isn’t one way to transfer a business interest to a Trust. The process can vary, and the business records can specify a specific function or specific required steps. Checking business records for any particular requirements is a great place to start.

Partnerships and LLCs 

Transferring partnership or LLC interests can be relatively easy if there are no additional business records requirements. 

1. Interests in partnerships and LLCs are typically transferred by signing an Assignment of Interest stating that you are moving the ownership to the Trust. Be sure to give a copy to any other partners or LLC members.
2. Check the partnership agreement or LLC operating agreement to see any other restrictions or requirements for transfers.
3. Be sure the partnership or LLC updates its records to reflect the Trust as the new owner of the interest, as described in the “How to Title Assets” section above.

Corporations 

For corporate stock, transfers are generally easy as long as there are no additional requirements or restrictions. 

1. Check the corporate records to see if there are any restrictions or requirements for transfers.
2. Contact the Secretary of the corporation to update the ownership records and issue new stock certificates. The Secretary may ask you to complete an Assignment of Stock or complete other paperwork.
3. Have the Secretary update ownership records and issue new stock certificates to reflect the Trust as the new owner of the interest, as described in the “How to Title Assets” section above.

Sole proprietorships 

For sole proprietorships, there is no separate legal entity to transfer to the corporation. A sole proprietorship is just you doing business on your own without a formal entity. Since there’s no entity, there’s nothing to transfer to the Trust. However, you may want to check that you have transferred any assets or equipment you use for your business into the Trust. 

How to Fund a Trust: Life Insurance 

It’s generally not necessary to transfer the ownership of life insurance policies to a Trust. Instead, the focus is more often on where the proceeds go (rather than who owns the policy). 

Typically, life insurance policies let you designate where the proceeds go by completing a “Beneficiary Designation.” You can have the proceeds go directly to someone (such as a spouse or child) or have the proceeds go to the Trust. One advantage to having proceeds paid to the Trust is they would then be controlled by the terms of the Trust instead of paid out directly to the Beneficiaries. This can be ideal if Beneficiaries are younger children. 

The decision is yours, though one common approach is to name your spouse as the Beneficiary and then name the Trust as the Alternate (or Contingent) Beneficiary. 

Each life insurance carrier has its forms, so you should contact them directly for more information and request anything required to update your Beneficiary Designations. 

How to Fund a Trust: Retirement Account Plans 

It’s generally not necessary to transfer the ownership of a retirement plan to a Trust. Transferring ownership can have adverse tax consequences. Instead, the focus is more often on where the proceeds go. 

Rather than changing the retirement plan ownership, you can typically designate a Beneficiary to receive the proceeds at your death. As with life insurance, a common consideration is whether you want the proceeds paid directly or whether you want them to go to the Trust, where you have more control on when and how they would be distributed. 

It’s common to name your spouse as the primary Beneficiary and then name the Trust as the Alternate (Contingent) Beneficiary. Your tax advisor should be able to help determine the best option for you and your particular tax circumstances. 

Each plan administrator has its Beneficiary Designation forms, so you should contact your plan administrator for more information and request any documents required to update your Beneficiary Designation. 

Next Steps after Funding a Trust

Once your Trust is “funded,” you’ll still need to keep the above process and tips in mind for any significant asset changes. 

• If you purchase a new house, you might be able to take the title directly in the name of the Trust, which could help you skip a few of the steps mentioned here. 
• If you open a new bank account, you might be able to open it directly in the name of the Trust. 

Keeping this in mind helps make sure your Trust stays funded and that the terms of your Trust continue to apply to your assets. 

It’s a good idea to revisit your plan after any significant life changes, such as births, deaths, or changes in marital status. Even if you haven’t had any life changes, it’s a good idea to revisit every few years to see if any updates are needed.