Trusts provide for the post-death transfer of assets at a minimum cost and effort. But, a trust cannot just be created; it must also be “funded.” An unfunded trust does not avoid probate and is a common, costly mistake.
“Funding a trust” changes how an asset is owned. It is not a change of owners. Instead of owning an asset in name only, the asset is owned by the same person as the ‘trustee’ of a revocable trust. How an asset is funded depends on its type.
Real property
The change in how California real property is owned is by deed. The deed to fund a trust changes the title from an individual as an owner in name only to an individual as trustee of his or her trust. The county recorder records the deed.
Bank, broker and stock accounts
Bank, brokerage, and stock accounts are funded by ownership, changing from individual to trust. Banks and stockbrokers are contacted. The trust itself or a summary of key terms of the trust, known as a “certificate of trust,” is provided to bankers and brokers.
Retirement accounts
Retirement plans are funded by a designated beneficiary, who is a person identified as the payee on the death of the retirement account owner. Generally, it’s best to avoid naming the trust as a designated beneficiary.
Plan administrators provide forms for the owner to name or change the designated beneficiary. The primary designated beneficiary is the non-owning spouse, and the alternate or secondary beneficiaries are individuals such as children, close relatives, or friends. A trust should be a designated beneficiary for minor children or a child with special needs.
A designated beneficiary funds life insurance policies. A designated beneficiary is a person or a trust identified as the payee on the insured’s death. Life insurance companies provide forms for the owner to name or change the designated beneficiary. For life insurance policies, the primary designated beneficiary is the trust.
Summary
Trusts provide for the post-death transfer of assets at a minimum cost and effort. However, a trust cannot just be created; it must also be “funded.” An unfunded trust does not avoid probate. This is a common and very costly mistake.