FUNDING A TRUST

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. An unfunded trust is a common and very costly mistake.

“Funding a trust” is a change in how the assets 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 ‘trustee’ of a revocable trust. How an asset is funded depends on its type.

Change in how California real property is owned is by deed. The deed to fund a trust changes title from an individual as an owner in name only, to an individual as trustee of his or her trust. The deed is recorded with the County Recorder.

Bank, brokerage and stock accounts are funded by ownership change from individual to trust. Bank and stock brokers are contacted. Either the trust itself or a summary of key terms of the trust known as a “certificate of trust” are provided to bankers and brokers.

Retirement plans are funded by designated beneficiary. A designated beneficiary is a person identified as the payee on the death of the retirement account owner. As a general rule, its 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.

Life insurance policies are also funded by designated beneficiary. A designated beneficiary is a person or trust identified as the payee on the death of the insured. 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.

 

Author: Mark W. Bidwell

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