Broker Check

Funding A Trust

| June 15, 2022


Trusts can be wonderful tools for control, avoidance of probate and creditor protection. The primary benefit of creating a revocable trust is that it provides a prearranged mechanism that will ensure the continued management and preservation of your assets should you become disabled and dictate instructions for the distribution of your assets at your death. Trusts are not for everyone. Whether it is appropriate will depend on your specific needs and circumstances.

If you have chosen to draft a Trust, we must determine how your assets are placed in a trust and if certain assets are not a great fit inside of it.

As you know, this is not intended to cover every possible situation as specifics will change over time and this is not intended to be legal advice. While we work with our estate planning attorneys to bring this information, you should direct specific questions to qualified legal counsel.

We will focus on funding a revocable trust not an irrevocable trust as there are different rules and regulations for irrevocable trusts. The person who creates and funds a revocable trust can be referred to as the "settlor," "grantor," or "trustor." The grantor can designate themselves as trustee or beneficiary of the trust depending on what the goals of the trust are. A successor trustee is named to manage assets in the trust if the grantor becomes incapacitated.

It is not enough to simply sign the trust agreement and expect the trust to function properly. Without transferring ownership of assets to the trust or naming the trust as beneficiary of accounts, it is a useless, empty vessel.

  • Funding a trust simply means transferring ownership of an asset to the trust. How this works will depend on the type of property you are transferring. A revocable trust does not need to have its own tax ID number but will use the grantor's social security number for tax reporting. Assets in the trust are still treated as if the creator of the trust owns them.
  • Banks and investment companies will need a copy of the trust to determine who the trustee/trustees are that can give instructions to transact business. They will also have their own internal forms to establish a new trust account and then transfer the assets into the newly titled trust account. No investments need to be liquidated; they are simply moved into the trust account. Cost basis for stocks, bonds, etc. remain the same once transferred.

      For assets that do not have formal titles or deeds such as personal belongings, jewelry, clothing, electronics, a non-formal document stating the trust now is the owner will suffice. For items that are valuable or carry sentimental value you should itemize the document listing each.

  • Retirement accounts generally are not transferred into the trust as it would cause the value of the amount transferred to be taxed upon transfer. The focus is where the proceeds of these accounts go after the grantor's death. Typically, a spouse is named as primary beneficiary and the trust is named as the contingent beneficiary. The beneficiary form is the driving document for all retirement accounts. Upon the surviving spouse's death, the Trustee makes disbursements to the beneficiaries as the document instructs. Tax considerations should be considered when the trustee is making distribution decisions.
  • Transferring real estate will vary on whether there is a mortgage on the property, or it is owed outright. For property that does not have a loan typically requires signing a deed to transfer your interest in the property to the trust and then recording that deed with the county. Check with your County Recorder for any specific requirements for deeds as each county can have its own nuances. For property with a mortgage, speak to the lender first and request written confirmation as to their procedure and that a transfer to a trust will not violate any terms of the mortgage or deed. Check that any insurance policy on the property automatically covers property transferred to the trust.
  • Life insurance policies generally are not transferred into a trust unless it is an irrevocable life insurance trust designed to remove the asset from your estate. Like retirement accounts, the beneficiary designation form is the guiding document as to who is paid the proceeds of the policy. The Trust is named as a beneficiary and the death benefit is paid into the trust. The proceeds are then managed by the trustee for the beneficiaries. The trust is the control mechanism as to amounts and timing of distributions. Ideal for beneficiaries that are minors or for a beneficiary that needs help managing money.

When your trust is funded, it is important to recognize that as your life changes or regulations change, you should determine if the Trust is still needed or if alterations need to be made. Always utilize a qualified estate attorney when changes are required. We look forward to more in-depth discussions on this topic with you.

Registered Representatives offering securities through American Portfolios Financial Services, Inc. Member FINRA, SIPC. Investment Advisory products/services are offered through American Portfolios Advisors, Inc., a SEC Registered Investment Advisor. Madison Wealth, LLC is independent of American Portfolios Financial Services Inc„ and American Portfolios Advisors Inc. The information presented is provided for informational purposes only and not to be construed as a recommendation or solicitation. Investors must make their own determination as to the appropriateness of an investment or strategy' based on their specific investment objectives, financial status and risk tolerance. Past performance is not an indication of future results. Investments involve risk and the loss of principal. Neither APFS nor its Representatives provide tax, legal or accounting advice. Please consult your own tax, legal or accounting professional before making any decisions