Funding a trust simply means taking assets that are titled in your name, and transferring them to your trust. By way of an example, if you have a car, you have a title. The car is titled in your name. If you were to put that car into a trust, you would go to the DMV and have the car re-titled from your name to the name of your trust. Funding a trust can also mean that you take an asset that requires a beneficiary designation, and re-establish a beneficiary in the trust name. For example, if you have a life insurance policy, you have a designated beneficiary. You can change that beneficiary’s name to the trust, and that re-titles the proceeds from that life insurance policy to the trust.
WHO IS ULTIMATELY RESPONSIBLE FOR FUNDING A TRUST?
The person making the trust is ultimately responsible for funding the trust and ensuring that the assets are transferred to the trust.
WHAT HAPPENS IF SOMEONE DOES NOT FUND A TRUST? DOES IT CEASE TO EXIST?
A trust does not come into being until it’s funded. A trustee, or the person that’s responsible for controlling the trust, can only control assets that have been titled in the name of the trust. If the assets are not transferred to the title of the trust, then the trust cannot pass control to the trustee, and the assets will be probated just like any other probate.
WHAT ARE THE ASSETS THAT I CAN PUT INTO A TRUST?
Almost any type of asset can be put into a trust. However, the common assets that are placed in trusts under normal circumstances include real estate holdings, bank accounts, non-retirement accounts at a brokerage that would stock bonds, tangible personal property, business interests, life insurance policies, and debts that are owed to the trust maker from some other source.
IS THERE ANYTHING THAT CAN ABSOLUTELY NOT GO INTO A TRUST?
One asset that should not be placed in a trust name is a qualified retirement account. There are tax implications of titling your 401K or your IRA in the name of a trust. When you take that asset and put it in the name of the trust, the IRS and the government takes that as a sale, or as a distribution of that asset, and so it becomes a tax. For qualified retirement accounts, you want to make sure that you just re-establish a beneficiary designation as the trust. That way, you’re not actually making a distribution. A health savings account is another asset that you don’t want to put in a trust name. Additionally, anything under the Uniform Gift to Minors Act, or the Uniform Transfers to Minors Act should not be placed in a trust name because those accounts technically belong to the minor. Since they belong to the minor, they cannot be transferred into someone else’s trust.
As I stated earlier, you don’t want to put a life insurance policy in the name of the trust, but instead you would put the beneficiary designation as the trust.
You can put any vehicle with a title into a trust, such as cars, boats, motorcycles, and airplanes. We think of cars as the easiest assets to transfer, but in order to transfer title of those types of assets into a trust, you have to go to the DMV and get a new title in the name of the trust. There are fees associated with this, so if it’s a valuable that has some kind of tax or transfer tax attached, you want to look at that and say, “Maybe I don’t want to put that in the trust because of the transfer tax.”
DO I ALWAYS NEED TO RE-TITLE ASSETS TO ADD THEM TO THE TRUST?
With the exception of beneficiary designations which we’ve discussed, the purpose of the trust is to acquire the title of the assets. That’s what makes the trust a viable entity. Because a trust exists as an entity, the death of the trust maker does not affect the trust. The trust survives, and that’s why there is no need to probate the assets in the trust. So, because of the purpose of the trust, you must re-title your assets in the name of the trust.
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