You have done your research, sought out and considered competent legal and tax advice, and finally decided to sign off on a revocable living trust-based estate plan.
Now comes the hard part: funding the trust.
What Is A Trust?
To understand what and why you are doing that, you need to first visualize the basics of a trust. A trust is simply a written letter to the trustee with your instructions on investing and disbursing the assets under the trustee’s management.
The instruction letter is called the “trust.” The assets the trustee is managing are called the “corpus.” Because you are granting the instructions and assets, you are called “grantor.” The people who benefit from the trust disbursements are called “beneficiaries”.
To fund a trust, you must transfer the assets to the trustee so he or she can manage them.
You can do this during your lifetime or arrange to have the assets transferred after your death.
What Is A Lifetime Transfer?
Let us talk first about the lifetime transfer. These transfers must go through the same mechanics as if you were selling or gifting an asset to a person.
A transfer to a trust is made directly to the trustee in his or capacity as such, e.g.” John Doe, Trustee of the ABC Trust dated April 29, 2012.” If you transfer the asset just to John Doe without specifying the capacity, then he takes it as an individual and not on behalf of the trust. Similarly, if you transfer the asset just to the ABC Trust, that transfer is defective because the trust does not have a legal capacity to hold an asset.
How Do You Fund A Trust?
How does the transfer take place? To fund a trust with real property, you must sign and record a deed made out to the trustee. To transfer a vehicle, you must sign over the title, fill out the Application for Texas title, form VTR-130U, and mail or bring it to the county office. To transfer a financial account or life insurance policy, you must change the title on the account with the institution. To transfer personal property, you must sign an assignment to the trustee that describes the property.
Along the way, you will probably have to file or show a Certificate of Trust, which is a document certifying that the trust exists and that the named trustee has authority to act. You will also want to inform your property and title insurance companies about the change in ownership.
Anything funded into your trust is under the management of the trustee. If you are the trustee of your trust, you just need to remember to always sign documents in your role as trustee, and to follow the terms of the trust. If you are dedicated to a trust-based estate plan, then you need to always buy your new assets in your capacity as trustee.
When you die, the corpus of the trust will pass according to the terms of the trust. It will not go through your probate estate.
If you decide that you do not want to fund the trust util your death, then you have different paperwork to do. You can list the trustee as a beneficiary of accounts, life insurance and vehicles. You can sign and record a transfer on death deed for real property. You can draft your will so it “pours-over” into the trust. Provided you included the proper language in your trust, you can name your trustee as the beneficiary of your IRA.
Correctly funding your trust is critical.
Virginia Hammerle is an attorney with Hammerle Finley Law Firm whose practice includes probate law, estate planning and contested litigation. To receive her newsletter contact her at firstname.lastname@example.org