What does it mean to “Fund a Trust”?
‘Fund a trust’ means that you are going to label your asset(s) in the name of your trust.
Funding your trust is the process of transferring all your assets to the trust itself in order for the trust to control it. It’s kind of like a corporation in the way the president of a corporation can manage the assets that the corporation owns but if the corporation doesn’t have their name on title the corporate president can’t do anything.
You can have the best trust in the world and if you never name items that are to be owned by the trust your trust is worth nothing!
What you want to do is to make your trust work and get the objectives you started with. This is only related to a trust. You never have to identify assets on a will because the will takes in all the assets that you own regardless of what they are and puts it all in one basket and then you go to the probate court after the person passes away.
What are some of the things that you need to consider when you fund a trust?
First of all, let’s look at the cash accounts such as checking, saving, CDs, credit union accounts, etc. What you do there is you talk to the vendor and ask them to put the ownership of the account into the name that you’ve selected for your revocable living trust.
What are the requirements for naming a trust? Does it have to include my name?
As for the name of the trust there’s no requirement that you have to use your first middle last name and all that. You can call it anything under the sun. You can call it the Rock & Roll Trust or the Fantastic Adventure Trust. It can be named anything that you want!
The next asset that you want to fund in your trust is all of your real property.
The way this is done is you have to create another deed that gets recorded in the county land office where you grant your real property into another entity.
You grant it to yourself as trustee of your revocable trust and in California we also have a preliminary change of ownership report that has to accompany that trust transfer deed. If you live in the property then there’s a $75 recording fee as well. It is important to make sure that the deed granting the property from you personally to you as trustee is recorded on the public record.
Another item that you would change the name of are deeds of trust.
If you sold a property a few years ago and you carried back a mortgage on the sale that ends up being a deed of trust you need to title that in the name of your trust. You also need to change the name on stocks and bonds accounts. If you have an account at Merrill Lynch or Charles Schwab, you contact the vendor and let them know you have a revocable living trust and that you want to name your trust as the owner of that account and you would use your social security number. Sometimes vendors want you to get another id number such as a federal id number or taxpayer identification number but it is not required on a revocable trust. You use your social security number, the new name on the account as the owner and your name as the trustee. If you have savings bonds then you will need to title the ownership of those and send them to the federal reserve branch to get in the name of your trust.
What if I own a mobile home? Should mobile homes be included when I fund a trust?
If you own a mobile home you need to change the ownership to your trust with the California agency that handles mobile homes registration. It is not done through the county recorder’s office.
What should I do with my personal vehicles, such as cars or motorcycles?
Naming personal vehicles in the name of your trust is a little sticky.
We’ve had clients go to the DMV and say I want to change the name of my vehicle (car, truck, motorcycle) to me as trustee of my trust.
DMV has said in the past…”Well we don’t know if there’s sales tax. Go over to the board of equalization or department of tax and fees and you get a letter from them that there’s no sales tax.”
This is a transfer from you to you as trustee so there is no sales tax, but the DMV puts this other step involved and it becomes a nuisance so what we do is oftentimes leave the titling of vehicles out of being named in the trust. Then when somebody passes away and there is a vehicle what is normally done is the person named in the will as administrator executor will go to DMV with the certified copy of a death certificate and they’ll fill out an affidavit under penalty of perjury that they are the rightful owner of that asset.
How can I make sure my car gets passed on to my beneficiary?
The DMV is fairly relaxed about letting somebody do that and it’s kind of scary if you have an expensive car. I’ve never heard it happen but you know somebody comes up and says they’re the successor to your estate and puts the title in their name and then there’s a problem. There is another choice with the DMV and one is you can put it in multiple names the ownership of your vehicle more than one name and they also have a form called pay on death so you’re the owner in all respects but DMV knows that on your death that you’re going to name your trust as the beneficiary or an individual as beneficiary on that registration for the vehicle.
What should I do with my retirement accounts?
On regular accounts such as retirement accounts there are several kinds of assets that do not get named in your trust because they’re already subject to another trust. Those are retirement accounts, IRAs, 401ks, 403 b’s, Roth IRAs, annuities, etc. Those accounts do not transfer by trust.
You can name it in your trust all you want, but it has no legal impact. The vendors won’t follow it. What you do with retirement type accounts is you can name your trust as the beneficiary on those accounts or if you name a person with these types of accounts the pension types (life insurance and annuities for example) it transfers automatically on death to whoever the designated beneficiary is.
I suggest when people create an estate plan that they verify all beneficiary designations with the vendors.
Sometimes the vendors prefer having their own form used. In other words, you go on their website and you’ve got a document that you’re using to transfer all your assets into your trust and they’ll accept it. They may give you some pushback, but if you use the vendor’s own form they’re much easier to deal with.
A problem with the IRS
I do not recommend people taking their pensions and naming their trust as the beneficiary unless there’s no other way of handling it for management of assets.
What I recommend is that if you have three children, you just name the three children as the beneficiaries on that account. An individual has a right to roll over IRAs into new accounts with certain tax benefits then you have to start taking distributions within 10 years and have it all done by the end of 10 years. If it’s on a required minimum distribution then a surviving spouse can extend it out to 10 years. If the person who passes away is not taking and doesn’t have to take minimum required distributions then you can roll it over and take the money out within five years.
We prepare a letter to the vendors describing that we want the ownership changed and we tell them what the name of the trust is, for example ‘the rock & roll trust’ dated February 1st 2024 by yours truly, comma, trustee. We tell the vendor in that letter that IRS code section 676 says you do not have to have another id number.
So as you can see, funding your trust is absolutely essential!
If you do not go through this process you might as well just shred your trust because it will be of no value to your beneficiaries on your passing.
If you have any questions about what it means to fund a trust you can call our office in Walnut Creek, CA at 925-934-6320 or click here to contact us now!
