Many people having good intentions establish a living trust to operate during their lifetime in case of disability and to distribute their assets without probate when they pass away. However, some people mistakenly assume that creating a trust is all that needs to be done. Unless you “breathe life” into a trust however, the trust process is not complete and the trust is just an expensive piece of paper. The way that a living trust is brought to life, or implemented, is through a process called “funding.”
A trust must be funded to be valid, since only assets that have been transferred to the trust during the grantor’s lifetime will beneﬁt from the advantages of a living trust. Funding a trust involves the actual process of changing the ownership of certain assets to the trust’s name or designating the trust as a beneﬁciary of accounts. The trust is then able to stand as a separate entity that holds the property. Where real estate is involved, a new deed is drawn up which changes the ownership from the name of the individual to that of the trustee of the trust. The grantor transfers title from himself or herself as an individual back to himself or herself as trustee of the trust. For example, the deed will say “Jane Doe, an individual hereby grants to Jane Doe as trustee of the Jane Doe Trust, the real property located at 123 Main Street.” That deed is then ﬁ led with the county recorder where the real estate is located. For bank accounts, insurance policies, brokerage accounts, and similar accounts, the institution that holds the account must be contacted and requested to change the ownership or beneficiary designation, as appropriate. Some assets that change hands more frequently, such as cars, may be intentionally left out of the trust because of the difﬁculty in transferring the ownership or other considerations. As a general rule, however, most of what a person owns should be transferred into the trust. Once a trust has been established and funded, the grantor must remember to transfer any property he or she acquires later into the living trust.
A trap for the unwary can be created by refinancing. Some lenders, especially out of state lenders, require that property be taken out of a living trust so that the loan can be made to the individual in his or her individual capacity. After the transaction, some people fail to put the real estate back into the trust, which can result in a probate of the property even though it was once in a living trust. If you have a trust and are required to take real property out of the trust during reﬁnancing, be sure to ask the lender to create two deeds for you – one to take the property out of the trust and one to put it back in the trust once the loan process is complete. If the lender won’t extend the courtesy of creating the second deed, you can always consult with your attorney to have the second deed prepared.
The mechanics of transferring assets into a trust are time consuming and require attention to detail; however, failure to do this can be fatal to your trust. Many attorneys leave it to their clients to complete these important tasks without sufﬁcient guidance on how it is to be done. Some even fail to instruct the client as to the importance of putting assets in the trust. A good attorney will include the process of transferring assets to the trust as part of the total estate plan.
© 2017 by Marlene S. Cooper. All rights reserved.
(Marlene S. Cooper, a graduate of UCLA, has been an attorney for over 35 years. Her practice is focused entirely on estate planning, estate administration and probate. You may obtain further information at www.marlenecooperlaw. com, by e-mail at Marlene@ MarleneCooperLaw.com, by phone at (626) 791-7530 or toll free at (866) 702-7600. The information in this article is of a general nature and not intended as legal advice. Seek the advice of an attorney before acting or relying upon any information in this article).