One of the most important steps when you create an estate plan that contains a trust is to make sure you fund the trust after you've signed your documents. When you find a form on a mail-merging website, you'll get the documents and be left to your own devices to complete the steps on your own. While you can get these steps done, a common problem I see with website form estate plans is that the trusts aren't funded after they are set up. The clients I have spoken to about this often express confusion - they weren't really sure what assets could, and should, go into their trust.
A recent client had specifically set up an estate plan to hold their investments in a trust. Once they had their documents set up, they didn't have any help with what to do next. Even though the client didn't get any guidance from their form website, we were able to create a simple plan to get their investments into their trust:
- Confirm that the investment could be moved into the trust
- Change the title on the investments to the name of the trust
- Keep the title change confirmation documents with the estate plan documents
With that plan complete, we were able to move on to more pressing matters...
Moving Assets Into a Trust
Moving an investment asset into a trust can be a strategic step in estate planning and asset protection. Trusts offer various benefits, such as avoiding probate, protecting assets from creditors, and providing control over asset distribution. A trust serves as a valuable tool for estate planning. By establishing a living trust, you can avoid probate, which saves time and reduces costs associated with transferring assets to beneficiaries. Additionally, a living trust allows for the smooth transition of asset management in case of incapacity.
Before transferring assets into a living trust, it is crucial to categorize them. The four main categories include:
- Real property: This includes primary and secondary homes, income properties, and other real estate holdings.
- Cash accounts: This category comprises checking and savings accounts, Certificates of Deposit (CDs), and Money Market accounts.
- Financial instruments: Stocks and bonds in privately and publicly held corporations fall into this category.
- Tangible personal property: Assets such as vehicles, boats, furniture, antiques, art, and collectibles belong to this category.
While a living trust is essential for transferring assets, it does not replace the need for a will. A will allows you to address assets not included in the living trust and provides instructions for their distribution. Ideally, your estate plan will have a will that works in conjunction with your trust, which is why attorneys refer to the set of documents as an "estate plan" - a group of documents that works together to accomplish your goals.
Transferring Real Estate: To transfer real estate into a living trust, it's important to consult with an attorney who can prepare the necessary deeds for ownership transfer. Deeds are not a legal document that you want to try to draft yourself. You also need to pay attention to any mortgage obligations and inform the mortgage company about adding the trust as a responsible party. Additionally, update your title insurance and homeowner's insurance to include the trust.
Assigning Financial Accounts: Contact your bank to inquire about their specific procedures for transferring accounts into a trust. Some banks require copies of trust documents, while others may require opening new accounts in the name of the trust. Ensure that all trustees sign the signature cards to facilitate a smooth transition in the event of your death.
Adding Stocks and Bonds: To transfer stocks and bonds into a trust, contact the respective broker or issuer. Follow their specific instructions, which may include providing a notarized letter, original certificates, a copy of the trust instrument, a power of attorney, and an IRS Form W-9.
Placing Tangible Property into the Trust: For items like jewelry, furniture, collectibles, and other personal property without written titles or ownership documents, create a property schedule in your trust document and indicate their ownership transfer to the trust. Transfer insurance policies covering these items to the trust as well.
Certain assets cannot be placed in a trust. Examples include Individual Retirement Accounts (IRAs), which must be owned individually, and some life insurance policies. You should always consult with financial professionals to understand any tax or legal implications before including retirement accounts, pensions, or life insurance policies in your living trust.
Moving an investment asset into a trust is a strategic step in estate planning. By understanding the benefits of a trust, categorizing your assets, creating a will, and following the specific procedures for transferring real estate, financial accounts, stocks, bonds, and tangible property, you can successfully move your investment asset into a trust.
Do You Need an Estate Planning Attorney?
If you or your family want to set up a trust or have a trust that you need to fund, let's schedule a Legal Strategy Session online or by calling my Edina, Minnesota office at (612) 294-6982 or my New York City office at (646) 847-3560. My office will be happy to find a convenient time for us to have a phone call to review the best options and next steps for you to work with an estate planning attorney to get your plan prepared and implemented.
