A trust is just one step in estate planning

Creating a trust is just the first step of the estate planning process. Once the trust is created, it has to be funded. Funding the trust means transferring the ownership of one’s assets to the trustee of the trust. Various assets require different transfer documents, but the transfer will be from the current owner of the asset to the trustee of the trust. 

A revocable living trust is designated as a “grantor trust.” This means that while it is a legal entity, it is disregarded for tax purposes. All assets titled in the name of the trust are still treated as owned by the grantor as an individual for tax purposes. Consequently, typically, there is no difference in tax filing and either grantor’s social security number is used as the trust’s tax identification number. 

A transfer of real estate to a trust usually requires a transfer deed that is later recorded together with any other required documents at the recorder’s office in the county where the real property is located. The recording can be done in person or by mail. The process and the cost of recording will likely vary by county and by state. Most often, insurance policies on real property cover property transferred to trust, but it is always advisable to double-check with the insurer in case any additional documents have to be completed. 

Oftentimes, mortgage contracts include a “due-on-sale” clause stating that the entire amount is due immediately if the real property is transferred. Federal law protects against this clause being triggered by most transfers of residential properties to revocable living trusts. Additionally, during the refinancing process, some lenders require that the real property be transferred out of the trust to refinance. Therefore, the real property has to be transferred back to trust after the refinancing process concludes. There are many exceptions, thus it may be advisable to contact the lender prior to the transfer. 

An assignment of bank or investment accounts to a trust occurs by following each financial institution’s internal policies. However, typically the assignment of the account document, along with the certification of trust or even a copy of the entire trust, will be necessary to effectuate the transfer. Most financial institutions will change the ownership of the account to trust, but some banks may require creating a new account. It is important to follow up with the financial institution in order to confirm that the account is in fact in the name of the trust. 

Business interests also can, and often should be, assigned to the trust. Business interests have various forms and the transfer to trust depends on the type of business entity and the rules controlling the transfer as established in its operating documents. Once the transfer is complete, the business records should be updated.  

Assets without formal title, such as personal property, should still be transferred to trust by executing a general assignment of personal property. 

Transfers to a trust should be kept with the trust. Some life events and major changes in one’s assets may require updates to the estate plan. Therefore, it is recommended to review one’s estate plan every few years to ensure that the trust remains funded and the terms of the trust continue to apply to one’s assets. 

Natalia Vander Laan is a Minden attorney.