You may be interested in creating a trust for a variety of reasons—privacy, minimizing taxes, providing for minor children, etc. But no matter why or how you go about creating it, it is important to make sure that your trust is correctly funded. If it isn’t, the trust may not accomplish what you want.
Even when you use an attorney to set up your trust, many lawyers leave it to you to transfer your assets into your trust. This can sometimes lead to bad results if you do not make the transfers, or if you do it incorrectly.
A few words about trusts
Trusts are not just for the rich. Having a trust is a great way to keep the details of your estate private, control cash flow to your heirs, avoid or minimize estate taxes for some, and make cash available to your heirs (whether they are minors or not) in order to manage your estate or family business.
A trust can also allow you to provide for a spouse in a second marriage without disinheriting children from the first, and protect the inheritances of your children and grandchildren from creditors, spouses, courts, and from themselves.
Irrevocable trusts vs. revocable trusts
You can set-up either a revocable trust, or an irrevocable trust. Revocable trusts are modifiable—once you set it up, you can still make changes to it, or get rid of it all together. An irrevocable trust is permanent—once it is set up, you lose most control over the trust and generally cannot make changes to it. Once you fund an irrevocable trust, you give up ownership and control of the assets and/or funds.
Irrevocable trusts are generally used for very specific tax planning, beneficiary protection or asset protection purposes. Irrevocable trusts are not usually used as a basic estate planning tool and usually should only be created with the help of an attorney.
Instead, for their basic estate planning, most people prefer to set up revocable trusts that can be modified according to changes in their situation. The Tomorrow trust is a revocable living trust, allowing you flexibility during your life and input as to how things are handled after you pass. The Tomorrow trust can simplify management of your affairs for your family down the road. If fully funded, it can also help your estate to avoid probate – a time-consuming and expensive process in some states.
Funding your revocable living trust
You can fund your revocable living trust with most types of assets. The exact method of transferring the asset to the trust will depend on the type of asset. Most assets can be transferred either by re-titling the asset in the name of the trustee (rather than your own name), executing an Assignment or Deed of Gift transferring non-titled assets to the trustee, or by converting financial accounts or real property titles to Transfer on Death (TOD) accounts/titles and naming the trustee as the TOD beneficiary.
What happens if my trust is not funded?
If you forget to transfer assets, re-title or add TOD designations to fund your trust, or if some assets are unintentionally left out of your trust because you acquired them after creating your trust, you still have a backup available if you have a pour-over will. A pour-over will directs your executor to transfer any assets inadvertently not placed in trust to the trust after death. The Tomorrow will is a pour-over will, and is designed to work effectively in tandem with the Tomorrow trust even if you don’t transfer ownership of assets directly to the trust.
That said, even though assets not specifically transferred to the trust may be covered by your pour-over will, they will probably have to go through probate first, which can be time-consuming and expensive. If one of your intentions in creating a trust is to avoid probate, then you need to make sure that the asset is actually in the name of the trust (or that it will transfer immediately on your death).
Making sure your trust stays funded
After you initially fund your trust, you should review your accounts and the terms of your trust periodically to see if you need to make any changes. The Tomorrow app makes it easy to review and make changes to your trust documents.
If you purchase or refinance a home, for example, some banks may require the property to be in your name, not the name of the trustee. So, if you purchase or refinance and the home is an asset you want in your trust, the title needs to be transferred back to the trust once financing arrangements have been completed.
Funding your trust by re-titling assets
Re-titling assets is one way to fund your trust. If you have a lot of accounts that you want to transfer, it may be somewhat overwhelming to go through the process of re-titling each account one by one, but if you put it off, it may never get done.
Start with the largest asset and work your way down to the smallest. Assets that you can re-title in the name of your trust include:
- Bank/savings accounts
- Investments (non-IRA and non-401(k)) and brokerage accounts
- Business interests (depending on whether or not the business allows this)
- Real estate
For example, you can change the title on an account from your name to: “Jane Doe, Trustee, or her successors in trust, under the Jane Doe Family Trust, dated July 1, 2017, including amendments thereto.”
Generally, you need a quitclaim deed or limited warranty deed in order to transfer real estate to a trust. The deed should be executed according to the laws of the state and county/city where the property is located, with the required witnesses, notary, and recording. (Many counties require that real estate deed be recording with a county clerk, for example.) You may need to file a copy of the trust or a summary of the trust.
There may also be fees and taxes associated with the transfer, though some states charge very little, provide an exemption for transfers to a living trust, or give a homestead exemption on the property. To make sure that the transfer doesn’t result in a property tax reassessment or transfer tax, you may need to file an exemption application or certificate with local tax authorities. In addition, you should check with your mortgage lender and insurer to see if they have any restrictions or notice requirements.
Gas, oil, and mineral rights
If you have gas, oil, or mineral rights as part of a property, then you can execute a quitclaim deed or limited warranty deed in the name of the trustee transferring the rights at the same time as you transfer the property. The above cautions about making sure you meet signature and recording requirements, and file any necessary tax forms, applies.
If you have a lease or royalty arrangement, you will need to do an assignment of rights to the trustee. Depending on the nature of your rights and where you live, the document may need to be recorded just like a deed transferring real property. In addition, the company that makes the payments may have its own requirements for transferring rights, so you should check with them.
Transferring a business interest to a trust can be a simple or complex process, depending on a variety of factors. In general, you would use some sort of "Assignment of Interest" or "Stock Transfer Agreement," along with a "Deed of Gift" to make the transfer. In addition, the company would need to be notified so that it could update its records to reflect the correct owner.
However, some companies may restrict transfer of interests in a company agreement or governing documents. You may need to first obtain consent from other owners of the company. If the company owns real estate subject to a mortgage, you may also need approval from the lender before you transfer your interest in the business. Because these issues can be complicated and have a financial impact, it's best to have a lawyer help you with this kind of transfer.
Life insurance can be both re-titled and have the beneficiary changed. If the trust is the owner of the policy, then if you become incapacitated, the trustee could potentially borrow against the policy to have funds for your medical care. You could also opt to just add the trustee as a beneficiary. Your insurance company can tell you what forms you’ll need to fill out and whether they’ll need a copy of the trust or a certification from the trustee.
Cars and other vehicles
You can transfer your car, boat or airplane to your revocable trust. In addition to signing the title to the vehicle over to your trustee, the trustee would have to reregister the vehicle with the proper licensing authority. Transfer taxes and registration fees may apply. In addition, boats and airplanes may be subject to state and federal registration requirements and would need to be reregistered with the proper authorities.
Accounts that should not be re-titled
Some accounts should not be re-titled, such as IRAs, 401(k)s and 403(b)s, HSAs (Health Savings Accounts), and MSAs (Medical Savings Accounts). If you re-title any of these accounts rather than changing the beneficiary, you may be subject to taxes and penalties because it would be considered a withdrawal of funds.
Rather than re-title the account, you add the trust as the last beneficiary of the account, after all other named beneficiaries. The trust should usually not be the primary beneficiary because there may be tax costs and penalties associated with having payments made through your trust rather than directly to individuals.
Funding your trust by assigning assets without legal title
For assets without a legal title, like household goods, digital accounts, jewelry, art, antiques, collections, etc., you can assign ownership rights to the trustee using an “Assignment of Property,” “Deed of Gift” or “Bill of Sale.” The best format for this document may vary from state to state.
The assignment of ownership rights should describe the property well enough to avoid doubt about what it is.
As an example, a general assignment of ownership interest of your personal property could say: “I, Jane Doe, hereby assign all of my right, title, and interest in and to any and all of my personal property without a legal certificate of title, both currently owned by me or acquired in the future, to the Doe Family Trust, dated July 1, 2017, including amendments thereto.″
It’s always a good idea to have your signature on this type of document notarized to help avoid any question about validity in the future.
Using TOD to fund your trust
Using a TOD (Transfer on Death) designation is another option, often simpler than re-titling, for funding your trust. TOD accounts or designations can be set up for a variety of accounts, including bank accounts, mutual funds, stocks, and bonds held in a brokerage account. Some states also allow TOD deeds for real estate.
TOD accounts and deeds are set up so that when the account holder or property owner dies, the asset will pass directly to the TOD beneficiary. The requirements to set up a TOD designation vary among financial institutions (for accounts), and among states (for real estate).
For real estate, if your state allows TOD deeds, you will generally need to record a new deed that adds the TOD beneficiary just as you would any other real estate deed. The exact form for this type of deed, how many beneficiaries you can name, and how to make sure it’s valid will vary from state to state, so be sure to check your local laws. The TOD beneficiary usually must record an “affidavit of death” or other designated statutory form in order to obtain title to the property.
To transfer a financial account after your death, the TOD beneficiary (in this case, the trustee) generally only needs to provide an original death certificate for the account owner to the financial institution and they will transfer to the beneficiary. In addition, you name a revocable living trust as the beneficiary of a TOD account, then after the account owner dies, the trust will need an EIN (employee identification number) before the account can be transferred to the trustee of the trust.
Your specific needs may vary, but using TOD documents is often the easiest way to handle funding a trust.
Can I do a joint TOD account?
Yes, you can. A TOD account can have multiple owners and multiple beneficiaries. However, the account will not pass to the beneficiaries until all of the owners die. But think twice before setting up your account this way, or there may be unintended consequences.
For instance, if you and your spouse are joint owners of the account, and you have children from a prior marriage, your spouse could disinherit your children (if they were beneficiaries for the account) by changing the beneficiary designations after you pass away.
Making sure your trust is properly funded is the final step to establishing a trust, so don’t put it off. The following resources may be of use to you as you re-title accounts or change them to TOD with your trust as the beneficiary.
Transfer on Death Forms
We've gone out and gathered up TOD documents from major financial and insurance institutions to help you more easily fund your trust. We'll do our best to hunt these down and keep them up-to-date, but we can't guarantee that what we have here is the latest and greatest from each institution. Make sure to double-check with each financial institution to make sure you have the correct/current documents!
Financial Institution Transfer on Death Forms
- 1st Discount Brokerage
- Aflac Incorporated
- AG Loan Fund
- Alliance Bernstein
- Ally Financial
- American Express
- AMG Funds
- Arrow Funds
- AXA Equitable
- Bank of America
- Bank of New York Mellon
- BlackRock Funds
- BMO Harris Bank
- Capital One
- Carey Income Fund
- Charles Schwab
- Citizens Bank
- Columbia Threadneedle
- Credit Suisse
- Davis Advisors
- DC Industrial
- Fidelity Investments
- Fifth Third Bank
- Foresters Financial
- Franklin Templeton
- Gabelli Funds
- Goldman Sachs
- Hartford Funds
- Highland Capital
- J.P. Morgan
- John Hancock
- Lattice Strategies
- M&T Bank
- Manning & Napier
- Merk Funds
- Merrill Edge
- Morgan Stanley
- Nationwide Financial
- Navy Federal
- Northern Trust
- Oakmark Funds
- Oberweis Funds
- Oppenheimer Funds
- Pacific Funds
- Parnassus Funds
- Putnam Investments
- RBC Bank
- Regions Bank
- Renaissance Capital
- Royal Bank of Canada
- Scott Trade
- Sentinel Investments
- Shelton Capital
- Sprott Global
- State Farm Bank
- Stock Cross
- T. Rowe Price
- TD Ameritrade
- TD Bank
- The Royce Funds
- Tortoise Capital
- Trading Direct
- U.S. Bancorp
- US Global Investors Funds
- USCF Funds
- Value Line Funds
- Victory Capital
- Wells Fargo
Insurance Company Transfer on Death Forms
- Aetna Life Insurance Company
- American Family
- American Fidelity
- American National Insurance Company
- AXA Equitable Life Insurance Company
- Bankers Life
- Connecticut General Life Insurance Company
- Dearborn National Life Insurance Company
- Genworth Life and Annuity Insurance Company
- The Guardian Life Insurance Company of America
- Horace Mann Educators Corporation
- ING Group
- Life Insurance Company of North America
- Lincoln Benefit Life Company
- The Lincoln National Life Insurance Company
- Massachusetts Mutual Life Insurance Company
- Metlife Insurance Company USA
- Minnesota Life Insurance Company
- National Life Group
- New York Life Insurance and Annuity Corporation
- The Northwestern Mutual Life Insurance Company
- Old Mutual
- Pacific Life Insurance Company
- Primerica Life Insurance Company
- Principal Life Insurance Company
- Protective Life Insurance Company
- The Prudential Insurance Company of America
- Securian Financial Group
- Standard Insurance Company
- Sun Life Assurance Company of Canada
- United of Omaha Life Insurance Company
- Unum Life Insurance Company of America
- USAA Life Insurance Company
- Western & Southern Financial Group
And, remember, Tomorrow is not a law firm, and we do not provide legal advice. When in doubt, talk to a licensed attorney in your area.