Funding Generally

The primary goal of having a trust is to avoid probate. In order to do this, the settlor must "fund" the trust. This means that the trust must own legal title to the settlor's assets. This can be done by transferring the assets into the trust or by designating the trust as beneficiary to those assets. These changes can be made by working with financial institutions.

Generally speaking, the assets shown below should either by owned by the trust or designate the trust as beneficiary. In some cases, both may be appropriate.

Though this list is not exhaustive, it can be used as a jumping-off point for transferring assets into a trust or designating the trust as beneficiary. There may be other types of assets owned by the settlor that may or may not benefit from being owned by a trust. It may be advisable to consult with a licensed estate planning attorney. Luckily, GoGo Estate customers receive built-in attorney support, so customers can ask a licensed attorney what to do with a certain asset.

Using Your Certification of Trust

The Certification of Trust included in your Trust Plan summarizes the trust. When designating assets to the trust, the settlor can show the Certification to the financial institution responsible for holding their assets. Instead of showing the entire trust document, the settlor can simply provide the Certification.

How to Transfer Assets into a Trust

This section highlights how to transfer different types of assets into a trust. While the settlor of the trust is living, it is important to fund the trust as substantially as possible. Any assets left outside of the trust or in the settlor's individual name may require probate.

However, only the assets that the settlor intends to be owned by the trust should be transferred into the trust. So, for example, if the settlor has a bank account that they wish to leave to a specific individual, and they name that individual as beneficiary to the account, the bank account will not be owned by the trust at death.

Real Estate

A deed is required to convey an interest in real estate. This deed may be either a quitclaim deed or a beneficiary deed. A "quitclaim deed" transfers the settlor's present interest into the trust, whereas a "beneficiary deed" transfers the property into the trust after the settlor's death.

Mortgaged Property

Federal law generally prohibits a lender or the holder of a mortgage from enforcing a “due on sale” clause with regard to most residential properties.  Only commercial properties and residential properties that contain five or more dwelling units are subject to having the mortgages accelerated by the lender.  Regardless, the settlor should consult with their mortgage lender before transferring any property into a trust.

Casualty and Property Insurance

The settlor should consult with their insurance agent to determine whether transferring their personal property into the trust will cause an increase in insurance premiums.

Bank Accounts

Bank accounts are usually transferred into a trust immediately after the trust is created. To transfer a bank account into a trust, the settlor must contact the bank and instruct them to transfer their account into the name of the trust.  The settlor may wish to include the Certification of Trust with these instructions.  When possible, visiting the bank in person can often simplify the process.  There may be certain internal forms that the bank uses to effectuate transfer, so the settlor should contact the bank to ask them the best way to transfer accounts into a trust.

Certificates of Deposit (CDs)

Bank accounts are usually transferred into a trust immediately after the trust is created. To transfer a bank account into a trust, the settlor must contact the bank and instruct them to transfer their account into the name of the trust.  The settlor may wish to include the Certification of Trust with these instructions.  When possible, visiting the bank in person can often simplify the process.  There may be certain internal forms that the bank uses to effectuate transfer, so the settlor should contact the bank to ask them the best way to transfer accounts into a trust.

Stocks and Bonds

Stocks and bonds are usually held by the brokerage firm in electronic form.  This provides convenience and safety in trading.  By transferring the account into a trust, the settlor automatically changes the ownership of all the securities in that account.  The settlor should contact their financial advisor or other representative to obtain the necessary paperwork to make this change.

Treasury Bonds

If the settlor owns any treasury bonds, they will need to complete Treasury Department Form FS 1851, “Request to Transfer United States Bonds to a Personal Trust,” and follow the instructions.

Life Insurance

Life insurance policies can include a trust as the primary beneficiary of the policy.  To do this, the settlor will need to contact the life insurance company and have the appropriate forms sent back to the Settlor for completion.

Business Interests

Depending on the type of business, the settlor of a trust may want to consult with the business’ attorney to transfer their ownership interests.  In doing so, they will need to look at the incorporation documents to determine whether transfers are allowed without penalty.

Club Memberships

Each private club has its own rules regarding whether the transfer of a membership interest to a trust is allowed.  The settlor should contact the club’s membership director to discover what steps must be taken to transfer their membership interests.

Vehicles

It is generally not necessary to transfer vehicle titles to a trust.  However, the settlor could go to the DMV to sign a Transfer on Death form so that the trust becomes owner of the vehicle after the settlor dies.

Special Types of Assets

There are certain types of assets that require more specific instructions.

Retirement Accounts

Trusts cannot own IRAs or 401(k)s during the lifetime of the owner. However, a trust may be listed as beneficiary to these accounts. Following the passage of the SECURE Act, certain people who inherit a retirement account must withdraw the full amount within 10 years of inheriting it. However, there are a few exceptions to this 10-year draw down rule:

1. Surviving Spouse: The surviving spouse can stretch-out the retirement account for the remainder of their life just like the rules pre-SECURE Act.
2. Minor Children: Before they obtain the age of majority, the 10-year drawdown rule does not apply. Once they reach the age of majority + one year, however, then they must withdraw the full amount within 10 years.
3. Disabled Beneficiaries: Disabled beneficiaries (as defined by the Code) can stretch out the retirement account for the remainder of their lifetime like the rules pre-SECURE Act.

Trusts with these types of beneficiaries (known as "designated eligible beneficiaries") can stretch out the retirement account as before.

With that background, here are some of the ways in which people with trusts generally handle retirement accounts when naming beneficiaries:

Stock Options/Restricted Stock

If a settlor owns any restricted stock or stock options, then they should not transfer such assets into the trust until they are finished vesting.  Once the assets have vested and the settlor has full ownership of these assets, then the settlor may begin the process of transferring them into the trust by working with their company’s attorneys.

Conclusion

Once again, if a settlor fails to fund their trust, they will not have a working trust. As assets may change, it is necessary that the settlor keep their trust funded properly. Settlors should also review ownership designations periodically as they acquire new assets.