Volume 9 • Issue 1 • January 2019
The Counselor is a monthly newsletter of Hallock & Hallock dedicated to providing useful information on estate planning, business succession planning and charitable planning issues. In this month’s issue, we will look at the importance of funding your trust. If you are interested in learning more about the ideas and processes discussed in this newsletter, please contact us for an initial consultation.
Trusts are a great estate planning tool. While the benefits of a trust may vary from person to person, some of the benefits include:
- Planning for incapacity
- Maintaining privacy
- Avoiding probate
- Providing ongoing management for minor or disabled beneficiaries
- Providing coordination and protection in blended family situations
While signing the trust can come with a big sigh of relief; that is really just part one. There is more to do. If the trust is going to work properly, the next step is to fund the trust. “Funding” a trust means the transfer of ownership of assets into the name of the trust – or more accurately the trustee of the trust. To do this, the title (or ownership) of assets must be transferred from an individual name (or joint names, if married) to the name of the trust. In addition, with some exceptions, such as retirement accounts, beneficiary designations are changed to the trust. Each asset should be evaluated individually to determine the approach necessary to coordinate ownership or beneficiary designations with the goals and objectives of the estate plan.
Why is trust funding so important?
Until a trust is funded, it doesn’t control anything. Assets without proper beneficiary designations or not properly transferred into the trust prior to death or the onset of incapacity may be subject to probate or conservatorship proceedings and may not pass to a desired beneficiary. This can mean negative and potentially costly consequences. More importantly, it means your goals and objectives may not be achieved.
What can my trust own?
There are very few limitations on what a trust can own. Among other things, a trust can own:
- Real property (home, land, other real estate)
- Bank/credit union accounts
- Safe deposit boxes
- Investments such as CDs, stocks, mutual funds, etc.
- Promissory notes – money owed to you
- Life insurance
- Business interests
- Intellectual property
- Oil and gas interests
There are, however, a few assets that cannot or should not be put into your trust. These include:
- IRAs and other tax-deferred retirement accounts
- Incentive stock options and Section 1244 stock
- Some annuities
You should also be cautious with interests in a professional business where trust ownership may violate licensing requirements. It is also important to remember that if the trust is an irrevocable trust, you will only be able to get the asset back out as allowed by the trust and it may cause tax consequences. If the trust is a revocable trust, assets can be added to or removed from the trust in your complete discretion.
Is funding a trust difficult?
Funding a trust is not difficult. However, it does take some time. Many of the changes can be handled online, or by mail, email, or telephone, but some institutions, such as banks, may require you to show up in person. The institution you are working with may want to see proof that your trust exists. This is satisfied with what is known as a certificate of trust. This is an affidavit of sorts that verifies the trust’s existence, identifies the trustees, and may discuss trustee powers. It should not reveal information about your assets, your beneficiaries, or their inheritance.
While the process of funding a trust is not difficult or complicated, it is easy to overlook assets or just procrastinate. Regular review and participation in trust maintenance plans can help in making sure your trust not only exists, but that it actually functions as expected. This can only happen if the trust is properly funded.
This Newsletter is for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. Nothing herein creates an attorney-client relationship between Hallock & Hallock and the reader.