Funding a trust refers to transferring ownership of your assets to your trust. Having transferred ownership of your assets, they come under the control of the trustee of your trust. This process is initiated by you as the creator of the trust, or what is known as the settlor or trustor. A settlor may choose to appoint themselves as beneficiaries or trustees of the trust, if that helps further the aims of the trust. In this article, we will discuss how to fund a trust.
More on Funding a Trust
A trust is funded by assets which are owned or controlled by a settlor. These assets are retitled and placed under the control of a revocable living trust. Funding a trust can also refer to naming a revocable living trust as a beneficiary of assets that require that a beneficiary be designated. When control is turned over to the trust, the assets are managed according to the trust agreement, such that:
- There is a person selected to manage the trust in the event that the settlor is incapacitated.
- Upon the death of the settlor, there is a trustee in place who will manage the trust and its accounts and handle the process of transferring accounts to the final beneficiaries stipulated in the trust agreement.
How to Fund Your Trust
The success of a revocable living trust depends upon the settlor funding the trust. Signing the trust agreement is only the first step towards setting up the revocable trust agreement.
As we said, this involves retitling assets in favour of the trust. The exact process depends on the kind of asset involved. In some instances, you will have to directly retitle assets. In other instances, all you can do is name the trust as a beneficiary. As a rule of thumb, whether or not you can or should transfer ownership or name a beneficiary depends on whether the asset is titled or untitled.
Titled assets, such as houses, cars, boats, and the like, that is, assets for which you have title deeds, can and must be retitled in favour of the trust. Untitled assets such as jewelry, clothes, collectibles, and the like, must have what is known as an Assignment of Property document created, signed and dated. This document names the trust as the beneficiary of the asset. If the untitled assets are especially valuable, they should be named individually, otherwise, they can be classed as “furniture”, “electronics” and other such groupings. Following these rules of thumb of funding a trust is not especially difficult.
They lead to the following observations:
- Bank accounts: There are different rules governing bank accounts, according to the bank, so you may need to close one account and fund a new account.
- Certificates of Deposit: After the certificate of deposit has matured, you will have to open a new certificate of deposit in the name of the trust.
- Securities: You will have to consult your broker and a lot of this depends on the kind of security you own. In some bonds and stocks will have to be reissued under the name of the trust. If these are shares in a private business, you may simply retitle your shares in favour of your trust.
- Real estate: Funding an account with real estate should be done with a quitclaim deed. You may have to get permission if you are on a mortgage or part of a homeowner’s association.