Creating a trust is only the first step to protecting your assets in a comprehensive estate plan. The next important step is actually funding the trust, which means transferring your assets and property into the trust. When we are asked: “how do I fund my trust?” the answer depends on the type of assets you have chosen to include in the trust, as well as the type of trust you want to create. As with most things, you have several options. Being knowledgeable about the most common ways to fund a trust will make your choices easier to make.
What exactly does “Funding a Trust” mean?
Once the trust agreement is signed and executed, the next step is to “fund” or transfer your assets into the trust. There are normally three ways to accomplish this. The method you should choose depends on the type of property you are transferring. The three methods include: change of title or ownership, assignment of ownership rights, and change of beneficiary. All of these methods are pretty simple, however, the procedures need to be followed to ensure the trust is properly funded.
Change of Title or Ownership
Many assets, such as bank accounts, investment and brokerage accounts; stocks and bonds held in certificate form, and real estate, can be funded into a trust by simply changing the name of the owner of the asset to the name of the trust itself. Depending on the financial institutions policies and procedures, you may only be required to change the name on your account. While other institutions may require that you close the original account and open a new one in the name of your trust.
Assignment of Ownership Rights
For personal property, personal loans, partnerships, copyrights, or other property that does not require a certificate of legal title to possess, funding into a trust can be accomplished simply by assigning your ownership right to the trust. For example, if you own any “intellectual property rights” to creative work, like trademarks, patents and copyrights, there is a simple form that can be used to assign those rights to your newly established trust.
Change of Beneficiary
Assets that name a beneficiary, such as life insurance policies, retirement accounts, and pension benefits, should not be retitled into the name of your trust. Instead, the proper way to transfer such assets is to change the primary and/or secondary beneficiaries.
What happens to property not included in my trust?
Any property from your estate, that you do not include in your trust, must be probated upon your death. This is why it is important not to underestimate the importance of properly funding your trust. Otherwise, your estate plan will not be nearly as effective as you or your family anticipated, and the trust will likely not serve its intended purpose.
If you have questions regarding trusts, or any other estate planning needs, please contact the Schomer Law Group either online or by calling us at (310) 337-7696.