We at the firm want to thank you for entrusting us with the opportunity to form your trust in 2015. The most common follow up question of our trust clients, is always how to fund the trust. I am submitting this article to you as a thank you and a reminder about the importance of funding your trust.
We often receive our clients through referrals from financial advisors and bankers. After the trust is completed our office advises the client to return to the advisor to change the beneficiaries to the Trustee of the named trust signed on the date the trust was endorsed. Often the financial advisor will be able to change beneficiaries through their software.
Another key player is the client’s accountant or tax advisor. The accountant should advise on the particular tax consequences of certain assets being transferred to the trust. They should be aware of what is in the trust because they will need to file a tax return for the trust as it earns income over the years.
We encourage our clients to check with their tax advisor to gain an understanding of the tax consequences of a transfer to the trust. IRA’s and 401K’s have issues with what to do with the income from those investments and how to handle the mandatory payouts when trustees reach certain ages. Some of the payouts are affected by the age of other beneficiaries in the trust.
*FUNDING THE TRUST
Funding the trust involves changing the beneficiaries of certain accounts to ensure the trust is the beneficiary. Funding the trust often requires attorneys to re-title real property through a deed so that it is owned by the trust. The trust also has an exhibit that should list all the accounts, real property, and any untitled property that is to be owned by the trust.
For younger clients relying on life insurance as a bulk of their trust assets, it is imperative to ensure that the beneficiary of the life insurance is the trust.
Be sure to also check your pay on death accounts and transfer on death accounts to ensure that the trust is beneficiary. If you have checking accounts that are jointly held, that money will go to the person who is the joint owner by operation of law.
Our firm often re-deeds property that the grantors want the trust to hold. If you desire to hold property in the trust it should be deeded to the trust.
Our firm creates a will that corresponds to the trust. In that will we provide that a document can be hand written and signed by the testator to distribute tangible personal property that is not titled. However, if there is an item or multiple items that are expensive and will subject the estate to probate, we encourage the owner to write that the item is to be put in trust. We also encourage the trustee to list said properties in the appropriate trust exhibit. This will ensure that it passes to beneficiaries outside probate and will be distributed according to your wishes described in the trust document.
In conclusion, it takes time, forethought, and strategy to ensure you have properly titled and designated your assets to ensure they are in fact held in trust. Your attorney, financial advisor, and accountant are willing and able to get the assets titled correctly. You are not taking full advantage of the trust until it is funded. Make it your goal in 2016 to update and fully fund your trust.
JD Fairchild Esq.