Lots of people establish a trust as part of their estate plan, but that’s only the first step. Next, you have to fund your trust. But what does that mean? It means you must physically take action to move assets to the trust. It means retitling assets in the name of your trust. It means making the beneficiary of an account your trust. But how do we do this? Below are some examples. I always learn best by seeing an example and then applying it to my situation.
Real Estate – you will need to record a new deed at the registry of deeds. How do you know if your home is already in trust? Check the deed! In Massachusetts, you can go to masslandrecords.com to search for deeds. If your home is not already in trust, your estate planning attorney will help you record a new deed placing it into trust. This is usually done as part of the estate plan with your attorney. Here are two examples of language in a deed moving that piece of property to trust:
Investment accounts – you can retitle these accounts in the name of the trust if your attorney advises you to. If you work with a financial adviser, your job will be a lot easier. They will do the work for you. If you do your own investing, you will have to go to the financial institution to complete a change of ownership. Again, work with your estate planning attorney to ensure you are using the correct tax identification number for the trust and the investment account. Retitling assets in the name of your trust will move the account to trust while you are alive. If moving an investment account will be a taxable event, then it may be advisable to make the trust the beneficiary of the account. This means that the account will stay in your name while you are alive, but after you pass away it will go into the trust without necessitating paperwork from the Probate Court.
Checking and Savings accounts – Again, lots of people assume assets are transferred to trust when someone passes away. However, this only happens if the trust is named as a beneficiary. People don’t typically think about putting a beneficiary on a checking or savings account. Banks do offer something called a Transfer on Death (TOD) designation. Sometimes it is called Payable on Death designation. But this is something you must do while you are alive. You can go into your bank and tell them that you would like to do a TOD on your accounts. As I’m writing this, I am unaware of a bank that allows for this to be done online. Therefore, you must go into the bank in person to do this. Also, you should go in prepared when you want to do this. Not every bank allows for a TOD to trust. Some only allow individuals. You should go prepared with a copy of your trust, and names, addresses, and social security numbers of the individuals you wish to leave your bank accounts to. Again, always seek advice from your estate planning attorney.
You also may have noticed that I didn’t include retirement plans as an example for trust funding. The reason is that retirement accounts can be tricky when left to trust. The ERISA laws can potentially cause higher income tax rates when retirement accounts are left to trust. Therefore, sometimes they are left to a spouse first, and then the kids. Drafting a trust to be able to accept retirement accounts and not cause negative income tax consequences for the beneficiary is quite complicated and can increase your estate planning fees. For the average person, it makes sense to leave retirement accounts outside of trust.
In summary, I recommend that you follow up with your estate planning attorney to make sure all your assets are set up to work with the plan that your attorney put together. It’s better to have a comprehensive plan that works for all your assets. I hope this little bit of information encourages you to do a check-up on your assets to make sure you are set up for success!
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