Most people think once they have signed their trust, they are done with the estate planning process. However, an estate plan is not complete until the trust has been funded. Many of the goals behind creating a trust (probate avoidance, privacy, management of assets upon death or incapacity, asset protection) are only achieved to the extent a trust has been funded.
The key to trust funding involves the transfer of assets into the trust by either retitling assets into the trust now or designating the trust as the beneficiary of the asset upon death. Depending on the type of assets a person owns, different trust funding options are available.
- Checking accounts, savings accounts, investment accounts and certificates of deposit, as well as securities such as bonds and stocks, can be retitled into a trust currently. Some clients prefer to keep a small checking account for everyday expenses in their own name individually. If this is done, the trust can be designated as the transfer on death beneficiary of the account.
- Life insurance policies can remain in the individual name of the owner, but the trust should be named as the beneficiary of the trust proceeds.
- Real estate can be transferred into a trust currently through the use of a general warranty deed, although this may also be done at death with a beneficiary deed naming the trust as the beneficiary.
- Tangible personal property (e.g. artwork, collectibles, furniture, etc.) can be transferred to the trust currently with an assignment of personal property. However, vehicles can be transferred at death by naming the trust as the transfer on death beneficiary.
Because of the potential tax consequences involved in naming a trust as the beneficiary of a retirement account (such as an IRA, 401(k) plan, etc.), that topic is outside the scope of this post.