How to fund a trust (or better yet: how NOT to fund a trust) is an important topic. I recently received the following from one of my students regarding the disbursement of assets from her father’s accounts after his death, now eight years ago and counting:
I received an email from my sister last week saying our brother (the Trustee), has hit a “snag” in the processing of said disbursement… The trust reads something to the effect that it is funded by “Exhibit A”…you probably see where I’m going here, it fits into your chapter on funding your trust, or rather how not to fund your trust. … This “snag” reads probate, sigh.
If you have a trust and you have not physically deeded your property into your trust, you are set up for probate. Probate is a legal process supervised by the court to help distribute a decedent’s property. While not the end of the world, probate is expensive and time consuming. When property is deeded into the trust, the trust will transfer the property free of court probate proceedings.
How to NOT Fund a Trust
- Do not rely on a statement in the will or trust. Just because your will reads “I devise all my property to the My FAMILY TRUST,” it does not mean the property has automatically funded your trust. Funding a trust means you physically take the deed to the County Recorder and record it as part of the trust. The sad truth is that that when someone relies on a written statement of this sort, the property deeds and bank and brokerage accounts remain in the person’s name, so there will be a probate.
- Do not rely on Exhibit A or Exhibit B to transfer the property into the will or trust. Attorneys may list all the real estate, bank accounts and brokerage accounts in Exhibits, and then draft the trust to state that it is funded by “Exhibit A”. The problem is that it doesn’t work. If a piece of real estate is listed in Exhibit A, and dad dies, it will not act as a valid transfer vehicle unless ALL the legal requirements of a deed are included in Exhibit A. Even if a Bank Account is listed on Exhibit B, no bank that will transfer money in an account to someone who is not on the signature card.
When a person puts forth the time and money to construct a trust, this is not the outcome they want.
- Anything that you must sign your name to sell or move should have its ownership changed to the name of the trust.
- Real estate can be transferred to, and thus fund the trust, by using a Quick Claim Deed.
- For bank accounts, you must change the Signature Card to read the name of the trust and the trustee.
- Contact your broker for the paperwork needed to transfer any stocks into the name of the trust.
Please make sure your trust is properly funded so your beneficiaries will not need to deal with the hassle, time, and expense of probate. Also, check into any trusts you could benefit from and make sure that they are properly funded as well so you don’t have any unpleasant surprises to deal with in the middle of grieving over the loss of a loved one.