Coming up with a trust for your loved ones is easy, because it is just a legally binding agreement that you draft. The hard part is making sure you have something to offer in the trust.
The aim of a trust is to transfer property to your beneficiaries or someone else upon your death. When the trust is well-laid out, it works as the perfect vehicle to transfer your assets without much conflict.
However, there is a little catch – for your beneficiary to take advantage of the trust that you set up, you have to transfer the assets that you own to the trust. The best way to do this is to work with your estate planning lawyer to help you fund the trust.
Many people don’t understand the technicalities of funding the trust and end up messing it up. Let us look at the basic principles of setting up this trust.
The Value Behind Funding a Trust
You can design the best trust agreement, but this is just an empty shell that has little or no value to you and the beneficiaries unless it has assets.
Should you (unfortunately) pass away before putting your estate in the trust; the property will go through the probate process. However, if you placed the assets in the trust, you are assured that they will be subject to the guidelines that you put down in the agreement.
Which Assets Should You Transfer to the Trust?
Many people wonder whether they should transfer all their assets to the trust or just a few of them. The answer is that you need to transfer as much as you can to the trust, including:
- stocks and bonds, mutual funds
- real estate
- savings/checking accounts
- collectibles
- business interests
- stocks in companies
- copyrights
- membership interests
When you decide to set up the trust, it is ideal that you have a comprehensive review of the assets that you own, and then talk to your estate planning attorney to understand which assets can be part of the trust.
Some Assets Don’t Fit the Bill
You might not have the luxury of transferring everything to the trust, and this is due to a few reasons. Some assets, such as pension plans and individual retirement plans might not be suitable for a trust because they might attract taxes.
Another instance where you might consider a transfer to the trust is when you own a second home whereby you are still paying mortgage for. Consider the clauses of the mortgage because the transfer might end up triggering the obligation to repay the home loan in full. Make sure you discuss this with your lawyer before you make a decision.
The Transfer Process
Every asset has a different transfer process to the trust. For instance, you can transfer your real estate property to the trust by coming up with a quit claim deed (consult the requirements in each state).
You can transfer the various financial accounts to the trust by asking your bank to give you the necessary signature cards.
You also need to talk to your broker to change the title of the name on shares and mutual funds to the name of the beneficiary. This will need you to complete a new brokerage account application. Talk to your lawyer to come up with a certificate of trust that you sign and present to the broker.
If you hold interests in a partnership or a limited liability company, you need to transfer it to the trust by writing a letter that you sign, then present to your partner to acknowledge it. You need to look at the clauses in the operating agreement of the partnership so that it doesn’t affect the transfer.
Cars and Your Trust
You can transfer the title of your vehicles to the trust, but this is not advisable. This is because when you get an accident, the mere fact that the car is in the name of the trust tells the injured party that you have more money and this might encourage a lawsuit.
It is therefore prudent that you categorize your assets into high and low risk to make things better for you when something happens that needs reassessment of your property.
Conclusion
When you have a trust, you make sure that you fund it for it to be operational. The earlier you fund it the better, because without he funds you just have a document that won’t be important to the whole process. The trust avoids the hurdles that come with the court handling your estate when something happens.
