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Funding a trust requires moving your assets into the trust’s name, which is necessary for the trust to operate effectively. The process for transferring assets varies depending on the type, such as real estate, bank accounts and investments. Some assets are easy to transfer, while others are more complex and may need professional help. A financial advisor can help you manage the transfer process to fund the trust so that it aligns with your estate planning goals.
A trust is a separate legal entity that holds assets for the benefit of designated beneficiaries. It can help you avoid probate, save time and money, and preserve privacy.
To make a trust effective, in addition to creating it you must transfer ownership of your assets into it. This process, known as funding a trust, grants ownership of these assets to the trust and involves several steps that require careful attention to detail.
You may be able to set up some types of trusts yourself, using downloadable forms or online tools. In other cases, you may hire a legal professional to assist with creating the necessary documents.
Even when you create the trust according to the law, if you don’t fund it by transferring property into it, those assets will not be protected.
A trust gets funded when you move assets into it. Here are six steps to help you fund your trust.
The first step is to identify which assets you want to include. Common assets placed in a trust include real estate, bank accounts, investment portfolios and personal property. It’s important to consider the nature of each asset because different asset types require different transfer procedures.
Some assets like retirement accounts may not be suitable for direct transfer into a trust. These can still be managed through beneficiary designations that align with your estate planning objectives.
Transferring real estate into a trust involves changing the title of the property. This typically requires preparing a new deed that names the trust as the property owner. It’s advisable to work with a real estate attorney to confirm that the deed is correctly drafted and recorded with the appropriate local government office. By transferring real estate into your trust, you help your beneficiaries bypass probate.
To fund a trust with financial accounts, you need to contact your bank or financial institution to change the account ownership to the trust. This may involve completing specific forms and providing a copy of the trust document. It’s essential to update the account titles to reflect the trust’s name, ensuring that these assets are managed according to your trust’s terms.
Personal property, such as jewelry, art and collectibles, can also be included in a trust. These items don’t have titles like real estate or bank accounts, so you can transfer them simply by creating a detailed list or schedule that specifies each item’s inclusion in the trust. This list should be attached to the trust document and updated as needed. Including personal property in your trust can protect and distribute it to beneficiaries.
Funding a trust can be complex, especially if you are transferring real estate. Consulting an estate planning attorney or financial advisor can offer you guidance on the best strategies for transferring assets and complying with legal requirements. They can also help you understand the tax implications of your decisions and make adjustments to your estate plan as needed.
Once your trust is funded, it’s important to review and update it regularly. Life changes such as marriage, divorce or the birth of a child may call for adjustments to your trust. Additionally, changes in tax laws or financial circumstances can impact your estate planning strategy, requiring changes to your trust. For example, as you acquire new property you may want to transfer it to the trust. Or you may add a new member of the family to the beneficiaries of the trust.
A woman researching how to fund a trust with personal property.
Personal property can encompass a wide range of items, from jewelry and artwork to vehicles and collectibles. Once you’ve identified the personal assets you want to transfer, you’ll need to formally transfer ownership to the trust.
This typically involves drafting a bill of sale or assignment document that clearly identifies the trust as the new owner. It’s important to verify that all documentation is accurate and legally binding to avoid any future disputes or complications.
A key step for both legal and tax purposes is establishing the valuation of your personal property. You may need to hire a professional appraiser to provide an objective valuation, especially for high-value items like antiques or fine art.
To fund a trust with financial accounts, you’ll start by retitling your financial accounts in the name of the trust. This involves contacting your bank or financial institution to update the account ownership from your name to the trust’s name. It’s essential to provide the necessary documentation, such as the trust agreement, to facilitate this change.
Not all financial accounts are suitable for trust funding, so it’s important to evaluate which ones should be included. Typically, checking, savings and brokerage accounts are transferred into a trust. However, retirement accounts like IRAs and 401(k)s are generally not placed directly into a trust due to potential tax implications. Instead, you might consider naming the trust as a beneficiary of these accounts.
Funding a trust with real estate helps avoid probate and transfer those assets to beneficiaries. To accomplish this, the real estate must be retitled in the name of the trust. This means changing the property’s title from your name to the name of the trust.
After retitling the property, you need to update any related documents to reflect the trust’s ownership. This includes notifying your mortgage lender, if applicable, as some lenders may require you to refinance the loan under the trust’s name. Additionally, updating your homeowner’s insurance policy to list the trust as the insured party is important to maintain continued coverage.
A woman reviewing her estate plan.
Once assets are transferred into your trust, you can manage and protect your wealth more effectively for future generations. The process starts with identifying which assets to include, such as real estate, bank accounts, or investments. Retitling these assets in the name of the trust may require updating deeds and account ownership details. Other types of personal property, such as jewelry and collectibles, can simply be listed as part of the trust’s assets.
A financial advisor can help you create a trust for your estate. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
While it may be tempting to save some money and plan your estate by yourself, you should still be careful with these DIY estate planning pitfalls.
