Funding Instructions

Proper Funding of Your Revocable trust

When you put assets in your revocable trust, you do not lose control of them. You can continue to buy and sell assets just as you did before. Anything you put into your trust can always be taken out later. However, until you transfer assets into your trust (called “funding”) your trust, you will not avoid probate unless and until the trustee obtains legal title to your assets. Learning how to fund your Revocable trust is essential to the performance of your estate plan.

 

WHO WILL FUND YOUR TRUST?

Even though the process of funding a trust is not difficult, it will take a substantial amount of time. How much time it will take to fund your trust will depend on how many assets need to be retiled into the name of the trust, how many beneficiary designations you have to change and how quickly the various financial institutions respond to your requests. We recommend you take the time to read this document and others, to learn how to properly fund your revocable trust. Because you will continue to administer, buy and sell assets held by your trust throughout your life, it is best for you to understand the various requirements of holding assets as trustee.

We suggest that you make it a priority and keep working on funding your trust until you are finished. Start with your largest assets, and then work down to the smaller ones. Maintain accurate records of each asset transferred to your trust. Remind yourself of the benefits that a revocable trust will provide you and your family, and look forward to the peace of mind you will have when your trust is fully and properly funded.

 

SEGREGATING PROPERTY IN A TRUST

If you transfer both Separate Property and Community Property to a revocable trust, it is important that you segregate the assets and maintain accurate records. Although trusts generally contain provisions stating that all assets transferred to the trust shall maintain their original character as either separate or community property, accurate records will ensure that there is no confusion.

Example of how title to Separate Property assets should be taken:

“[TRUSTEE 1] and [TRUSTEE 2], as Co-trustees of the

[NAME OF TRUST], dated [DATE], and All Successors in Interest,

to remain the sole and separate property of [NAME].”

 

HOLDING TITLE AS TRUSTEE

Because a trustee is the legal owner (title holder and fiduciary) of assets held in a trust, title to all assets in a trust should be held in the name of the trustee, not in the name of the trust. You are to take title to assets like this: Two Settlors “[TRUSTEE 1] and [TRUSTEE 2], as Co-trustees of the

[NAME OF TRUST], dated [DATE], and All Successors in Interest” One Settlor “[TRUSTEE 1] of the [NAME OF TRUST], dated [DATE], and

All Successors in Interest”

 

HOW TO CHANGE TITLES AND BENEFICIARY DESIGNATIONS

 

Your Home, Real Estate, Land, Condominium, Etc.

 

Depending on the state in which the property is located, a correction deed, grant deed, trust transfer deed, warranty deed, assignment, or quitclaim deed will be used to change the titles of real estate to your trust.

The new deed will include how the property is titled now (before you put it into the trust), what the new title should be (to put it into your trust) and the legal description of the property. The deed for each property will be signed by you (or the grantor), notarized, and recorded in the county where the property is located.

 

Note: California requires that a “Preliminary Change of Ownership Report” be filed with each deed recorded for property tax purposes.

 

If you own property in another state, you will want to transfer it to your trust to prevent a probate and/or conservatorship within that state. It will be necessary to obtain the name and address of the county recording office of the other state, as well as verify which form is to be used. It is the policy of Perkins Law Firm to not prepare title transfer documents for real estate outside of California.

When putting encumbered real estate into your trust, contact all lenders to insure that the transfer to your trust will not activate any “due on sale or transfer” clause of your mortgage. Most financial institutions will approve this transfer provided that you are the trustee and the beneficiary of the trust and the trust is revocable by you.

The title insurance covering your real property should be changed. Call your title insurance carrier to determine the procedure for making such a change and check to make sure the carrier will still insure title when your trust is the owner of the property transferred to the trust.

Your homeowner’s and liability insurance should also be changed to reflect your trust on the title and the trustee(s) as additional insured. Your insurance agent will be able to make this change for you, probably at no charge. The insurance company will need a letter of instruction from you and a copy of the new deed titling your property in the name of your trust.

 

Bank Accounts

You need to change the ownership of your checking and saving accounts to your trust. Some institutions will require that you sign new account agreements to receive a new account number and new checks. Most financial instantiations will require the signing of new signature cards, signed by the trustee(s). If you are your own trustee, simply sign a new signature card with your usual name as trustee of your trust. The information on your checks does not need to change. Checks can still be printed with just your name, address, and telephone number on them and you sign them the way you always have.

Beneficiaries named on financial accounts should generally be changed to your trust. This prevents the possibility of the court taking control of the funds. The financial institution should have its own form for changing beneficiaries. If they ask for a copy of your trust document, your Certificate of trust should satisfy their requirements.

Certificates of Deposit should also be titled in the name of your trust. If the CD has a beneficiary, change this to your trust as well. You do not need to cash in your CD to do this. Some financial institutions will title the certificates immediately with no penalties; however, if they require that you wait until the CD matures, change the designated beneficiary and use an assignment of assets to transfer your ownership interest to your trust. Once the CD matures, change the title to your trust before you renew it.

Credit Union accounts should also be transferred to your trust. Set up a new account titled in your trust’s name and transfer your existing account(s) to it. Note, however, that to have an account at a credit union, you must be a member. For your trust to qualify as a member, the Settlor(s), trustee(s), and Beneficiaries must qualify for membership. Since most trusts only include family members who are usually eligible to join, there should not be a problem. If the trust does not qualify as a member, name your trust as the “pay on death” beneficiary of your existing account(s), or add your trust as a “joint owner with right of survivorship” (joint owners do not have to be members). When you die, your credit union account(s) will automatically be owned by your trust.

Safe Deposit Boxes should be transferred to your trust. You need to change the box authorization card to your trust and the trustee(s) will need to sign the card. This allows your Successor trustee ready access at your death or incapacity. See a bank officer to make this change.

 

Stocks, Bonds and Mutual Funds

If you maintain an account in the name of your bank or brokerage company or invest in a mutual fund, you must provide them with written instruction to change the name on your account to your trust. Call your financial institution first to see if they have their own form or procedures that you will need to follow. They will likely need to see a copy of your trust documentation.

If you possess the actual stock or securities certificates, you may want to set up an account with a financial institution. They will transfer the titles to the name of your trust, as well as hold your securities for you to prevent the possibility of loss or destruction. If you are more comfortable keeping the actual certificates yourself, have new certificates issued in the name of your trust. A broker or banker can do this for your, usually for a nominal fee.

Savings bonds can be re-issued in the name of your trust with no adverse tax consequences. Refer to online assistance from the Federal Treasurer. http://www.treasury.gov/Pages/default.aspx

 

Automobiles, Boats and Other Vehicles

Unless these assets have a combined considerable value, we do not recommend transferring title of automobiles, boats and other vehicles to your trust. In California, small estates are exempt from the formal probate process. Therefore, these assets can change hands easily so long as they remain below the Probate Exemption.

If your various motor vehicles are of substantial value, the California Department of Motor Vehicles will allow title to be re-issued in the name of your trust. Contact your insurance company so they can change your policy to reflect the change of ownership and list the trustee(s) as an additional insured.

 

Personal Untitled Property

A simple assignment can be used to transfer personal property such as furniture, artwork, clothing, jewelry, cameras, sporting equipment, club memberships, pictures, books, and other tangible articles of a personal nature.

 

Life Insurance

The transfer of life insurance into your trust requires careful evaluation. If you possess “incidents of ownership” over life insurance at your death, the entire proceeds of the policy will be included in your gross estate for federal estate tax purposes, regardless of who is named as beneficiary of the policy. One possible solution is to have an irrevocable trust own your insurance policies.

If federal estate taxes are not of concern, but administration of the proceeds of a policy are, then you may want to consider naming your trust as the beneficiary of your policy. Ownership of the policy may be transferred to your trust as well, but is not necessary. Contact your insurance carrier to discuss the details.

 

Employer-Provided Insurance

If your employer has provided you with life insurance, accident insurance or disability insurance, you should change the beneficiary of these policies to your trust if appropriate. Your employee benefits or personnel department will have the appropriate forms and can help you complete them.

 

IRA, 401(k), Pension, Profit Sharing, Keogh, and Other Tax-Deferred Plans

If you possess one or more of these tax deferred contractual assets that are subject to disposition upon your death according to various contractual provisions, as opposed to the probate process, there are tax consequences to the distribution of this type of asset. It is important to discuss this type of asset with your financial planner to properly integrated the into your estate plan.

 

FUNDING OF ASSETS WHERE PROFESSIONAL ASSISTANCE IS ADVISED

The following is a list of assets that will most likely require the advice of a qualified professional when funding your trust:

  • Deeds of trust

  • Closely Held Corporations

  • Buy-Sell Agreements

  • Subchapter S Corporation Stock

  • Corporation Interests

  • General Partnership Interests

  • Limited Partnership Interests

  • Copyrights, Patents, and Royalties

  • Oil and Gas Interests

  • Foreign Assets

CHANGES REQUIRING A REVIEW OF YOUR ESTATE PLAN

If any of the following evens occur, you should review the potential effect on your estate planning documents to determine whether they should be amended or revised. (This is not an all-inclusive list.)

Changes in Family Relations

  • Marital dissolution or separation

  • Death of a Spouse

  • Marriage of a single person

  • Changes regarding child or grandchild (or other beneficiary)

  • Birth of a child

  • Marriage of a child

  • Adoption of a child

  • Illness of a child

  • Death of a child

  • Economic change, good or bad fortune

  • Attitude change toward testator

  • Financial responsibility

Changes in Economic and Personal Condition of Testator

  • Asset value-increase or decrease

  • Change in insurability-life insurance

  • Change in business interest-new partnerships or corporations

  • Property acquired in a different state

  • Change in health of testator or spouse

  • Retirement from business or profession

External Changes

  • Changes in laws: state and federal income, estate and gift tax, property laws, trust laws and probate laws

  • Change of residence to different state

  • Death of executor, trustee, or guardian