Since your trust is a written agreement between you and your trustee, breaking up the incidents of ownership of your assets (most critically the bare title of those assets), it necessarily follows that you must take affirmative steps to transfer your trust assets to your trustee. You could rely on your pour over will to make that transfer after your death, but this will require a probate which is an unnecessary expense that you could now easily avoid. Failure to transfer your assets could also have adverse tax consequences and frustrate your attempts to have your estate privately administered in the event of your disability.
This page is designed to help you understand the importance and complexity of funding your living trust. You should play an active role in funding your own trusts. When you engage your estate planning attorney, make sure you understand your duties in this regard, so that nothing falls between the cracks. Confirm your funding actions with your attorney and periodically consult with him or her to ensure that your plan is still viable and properly funded. Encourage your attorney to communicate with your financial advisors, stockbrokers, financial planners, insurance agents, and accountants.
When you transfer your real estate to your trust, you need to draft a deed, ensure that you don't trigger any due on sale clause you may have in your mortgage, assign your title policy, obtain the proper transfer stamps, and record the deed with your county's Recorder of Deeds.
You may transfer your real estate to your living trust by quitclaim deed, warranty deed, or deed in trust, identifying your trustee as the grantee to facilitate the trustee's receipt of a marketable title and subsequent transfer to third parties. You should expressly grant your trustee in your trust declaration the authority to sell and deed the property to third parties so that there is no issue as to whether your trustee may take that action.
Transfers into trusts are typically exempt from transfer taxes because they are transfers without consideration, but some municipalities charge a fee for an exempt stamp.
Your mortgage may have a "due on sale or transfer" clause in the mortgage. Under federal law lenders may not enforce due-on-sale clauses when the borrower occupies the real estate. Garn-St. Germain Depository Institution Act of 1982; 12 CFR section 591.5(b)(1)(vi). But your lender require timely notice of any subsequent transfer of the beneficial interest or change in occupancy. To avoid problems, give notice to your lender.
If you do not reside in your property you do not have protection under federal law. You need to obtain the consent of your lender before transferring such real estate to your trust to avoid triggering the due-on-sale-or-transfer provision of your mortgage.
Your transfer may nullify your title insurance. Unless your title policy prohibits assignment, you should assign your title policy to your trust. If your policy cannot be assigned you need an additional insured endorsement which will amend your policy to add your trust as a named insured. Title companies usually charge between $75 and $150 for this paperwork.
Some title policies may provide for "continuation of coverage if the insured transfers the title to the property to a trust, wherein the insured is the trustee/settlor, for estate planning purposes."
You may or may not wish to transfer your family residence. One issue may be asset protection. One spouse may be susceptible to judgments because they are in a risky profession, or because they have creditor problems generally. You will need to consider the benefits of owning your home in tenancy by the entireties.
Of course if you do not put your property in a trust, you will have a probate or a bond in lieu of probate after your death or your spouse's death.
If your residence is in your trust you will need a clause in your trust allowing your spouse to continue to use the residence after your death. An example of such a provision from our trust forms:
Spouse’s Occupancy of Residential Property in Trust
The provisions of this Article shall apply if any interest in property that was used by my spouse and me as a residence at the time of my death (“the residence”) is allocated to a trust created under this instrument. “Residence” includes a house or condominium (or the beneficial interest in a land trust that holds title to a house or condominium), cooperative apartment, or nursing home or retirement community arrangement, and any fractional interest therein. Retention and Use of Residence. I authorize the trustee to retain the residence for my spouse’s life notwithstanding that the residence may constitute a large part or all of the principal of the trust and may lack the diversification or productivity ordinarily considered prudent for trust investments. My spouse may continue to use and occupy the residence rent free, provided that my spouse pays all taxes, assessments, insurance premiums, ordinary repair bills, and other expenses of protecting and maintaining the residence. Notwithstanding the preceding sentence, if any expense payable by my spouse pursuant to the preceding sentence would be chargeable against the principal of a trust, the trustee shall distribute to my spouse as much of the principal of the trust as is necessary to reimburse my spouse for payment of that expense or, if requested to do so by my spouse, the trustee shall pay that expense directly from the principal of the trust. As long as my spouse pays expenses as required by the preceding two sentences of this paragraph, the trustee shall not sell the residence except as provided in the following paragraph. Sale and Purchase of Residence. Upon my spouse’s written request, the trustee shall sell all or any part of the residence for its fair market value and shall retain the proceeds of the sale as principal. Upon my spouse’s written request, the trustee shall purchase or construct any new residence my spouse shall request out of the proceeds of any sale under this paragraph and shall thereafter hold the new residence as “the residence” subject to the provisions of this Article. My spouse may at any time purchase the residence from the trustee for its fair market value, determined as of the date my spouse delivers to the trustee a written purchase offer. Trustee’s Liability. No trustee shall be accountable for any loss sustained by reason of any action taken or omitted pursuant to this Article, and the powers granted under this Article shall be exercised only in a fiduciary capacity.
Stocks and Bonds
Transfer of your stocks is a lot easier if you hold your stocks with a broker, in a street name. This convenience is one way that brokers earn their fees. Moreover brokers are familiar with and often recommend common estate planning, such as a trust, and your broker should know the procedures for setting up a new account owned by your trust. You may need a letter of direction, a copy of your living trust, and your broker's application materials to set up your new account. Instead of giving your trustee your whole trust document, you may want to give only a certification with the first page, last page, and trustee powers.
Transferring stocks held in your own name is considerably more difficult and somewhat expensive. To effect this transfer you must act through the company's transfer agent, which means that you must first identify that transfer agent and find the transfer agent's contact information. Know too that stock may be held in a certificate form, a book entry, a dividend reinvestment plan, an employee stock ownership plan, or some other device. Any plan that you may be in must be reviewed in order to ascertain the proper procedures.
The first place to look for transfer agent information is any documentation you might have from the company. If no such information is available you will need to do some research, for which the internet may come in handy. First try the company's web site. If you cannot find the company's web site you may try www.reportgallery.com.
Generally you will need: 1. a letter of instruction; 2. stock/bond power; 3. affidavit of domicile; 4. W-9 request for taxpayer ID; 5. title page, trustee powers page(s) and signature page from your trust; and 6. your original stock certificate if held in certificate form.
The stock/bond power and affidavit of domicile forms may be found on the transfer agent's web site and you may even be able to fill in the forms online. If the W-9 is not included you can find this form on the IRS website. A particularly inconvenient feature of this procedure is that you must sign the stock/bond power in the presence of a bank officer or stockbroker who participates in the Medallion Signature Guarantee Program. A notary is not sufficient.
Then when you have your completed forms, certificates, and your letter of instruction, you must send it via registered mail, insured for 2 percent of the total market value of the certificates. If no certificates are involve you may use certified mail without insurance.
U.S. Savings Bonds
Transfer Series E , Series EE , Seres I, and Series H bonds with Treasury Department Form PD-1851, which is available at the Department of Treasury on the Bureau of Public Debt web page at www.publicdebt.treas.gov/sav/savforms.htm. While at this site you may use the Savings Bond calculator, http://www.publicdebt.treas.gov/sav/savcalc.htm, to determine interest earned.
For your convenience you may wish to have a relatively small checking account outside of your trust. If you have less than $100,000 in assets outside of your trust, including the checking account, you will not have a probate. If you wish to place some or all of your funds into your trust you will simply open a new checking account in the name of the trust. You may not need to print the trust name on the checks.
Likewise savings accounts and CDs may be easily transferred either by a letter of direction, the institution's specific account form, or by opening new accounts. You may need to hold a CD until it expires to avoid forfeiture of interest.
Safe Deposit boxes can be transferred to the trust by providing the box with the necessary signature cards. Assets placed in a safe deposit box in the name of a living trust are deemed to be owned by the trust.
Transfers of closely held corporation stock may be governed by a restriction on the certificate itself, and other documents such as a buy-sell agreement. A buy-sell agreement should carve out an exception for stock to be held in trust for estate planning purposes. If otherwise permissible, the stock can be transferred by voiding existing stock certificates and reissuing new ones in the name of the trust.
Transfer of S corporation stock is allowed if the grantor is a citizen or resident of the United States. The S corporation stock may be held for a maximum of two years after the grantor's death in a living trust, provided it had been owned by the living trust on the date of the transferor's death. IRC §1361(c)(2)(A).
Partnership, limited liability, or other entity interests may be transferred through assignment of the partnership or interest, and may be governed by a partnership agreement or operating agreement.
Sole proprietorship interests generally do not exist, per se. The assets of the propietorship may be assigned to a living trust, but generally it may be more desirable to incorporate.
Tangible Personal Property
You may transfer tangible personal property to your living trust by assigning the property or by executing a bill of sale. Alternatively your may prefer use a written instrument directing that specific personal property be distributed at your death. If so you may wish to have a clause like this in your trust:
Gifts at My Death On my death, the trustee shall distribute the following gifts from the trust estate: Tangible Personal Property. The trustee shall make gifts of tangible personal property as I direct by any written instrument signed by me. "Tangible personal property" means all personal and household effects, jewelry, automobiles, collections, and other tangible personal property that I own at my death or that is then included as part of the trust estate (including insurance thereon but excluding business use property, precious metals, and unset gems). I may from time to time amend or revoke the written instrument, and any subsequent instrument shall control to the extent it conflicts with prior ones. Any decisions made in good faith by the trustee in distributing tangible personal property shall nto be subject to review, and the trustee shall be held harmless from any cost or liability as to those decisions. I shall be deemed to have left only those written instruments that the trustee is able to find after reasonable inquiry within 60 days after my death. Gifts of Remaining Tangible Personal Property. I give all tangible personal property not otherwise effectively disposed of to my spouse, if my spouse survives me, or if my spouse does not survive me, in equal share of equal value to my children who survive me (to the exclusion of the descendants of any child who does not survive me), to be divided among them as they agree or, if they cannot agree within 60 days after my death as the instrument determines.
Similar language may be used in your will. Although not enforceable in a will, most often your executor and your beneficiaries will abide by your wishes.
Automobiles may be transferred to your trust but for your convenience you may wish to have title in your own name and leave the disposition as part of a small estate affidavit.
You may easily name your living trust as the beneficiary of your life insurance policies. Your insurance companies supply beneficiary designation forms.
The technicalities of designating of your trust as a beneficiary of your retirement accounts are beyond the scope of this discussion. Generally you will want to avoid this and you will instead name individual beneficiaries so that they can roll the retirement accounts and defer the income taxes that will be owed on the proceeds.
You may, however, have a disproportionate percentage of your estate in retirement accounts, forcing you for estate tax reasons to use part or all of the IRA to fund your trust at death, or you may need to use your trust to place restrictions on your beneficiaries.