A Simple Trust funding checklist | Assets Checklist

Creating a trust is a significant step toward financial security for many people. When a person takes this step, he accepts added responsibility. As trustee, he will initially be concerned with the funding of his trust. In most circumstances, a revocable trust will be created primarily for tax and estate planning purposes. A secondary benefit of a revocable trust is that the estate will not have to be probated if the settlor (the person creating the trust) transfers all of his assets into the name of the trust.

Funding the trust is critical. Below you will find a trust funding checklist. The trustee of a trust works only with assets that have been transferred or funded to him in the name of the trust. To the extent that any of the assets in the settlor’s name are not funded to the trustee prior to his death, they may be subject to a probate administration.

Funding a Trust – Trust funding checklist

After creating the trust, it is necessary to fund it by identifying assets that the settlor desires to make a part of the trust. Usually, funding a trust involves changing the legal ownership of property from the settlor’s name to the trustee’s name.

Property placed in the trust can be held in the trust’s name:

John Doe and Jane Doe, as Trustees of the Doe Family Trust, dated ____________.

The following discussion can serve as a funding checklist.

1. Home and Other Real Estate

Including a home and other real estate in the trust requires an attorney to draw up a new deed and have it recorded.

Under Arizona law, a deed to real estate which indicates that a trust owns the real estate must disclose the beneficial owners of the real estate. The beneficial owners of real estate held in trust are the beneficiaries of the trust. In nearly all cases, the initial beneficiaries of the trust are also the settlors. So long as the deed to the real estate discloses the beneficial owners, it is not necessary to also record the actual trust documents.

Another item for your rust funding checklist: Real estate located outside the state of Arizona may pose a special problem, because in many cases a corporate trustee (such as a bank) or successor trustee from Arizona will not be empowered to act in the state in which the real estate is located. This may preclude a conveyance to the trustee and necessitate use of a nominee partnership. A nominee partnership is created for the sole purpose of holding the title to trust assets. If a nominee partnership is used, a nominee partnership agreement should be prepared in addition to the trust agreement.

Any interest in real estate less than absolute ownership, such as an agreement of sale or a lessee’s interest, may also be assigned to the trust. The terms of the agreement of sale, lease, or other relevant document should be reviewed by an attorney to assure that assignment is permitted.

2. Stocks and Bonds

Stocks and bonds, including all registered securities, should be put in the trust’s name. A stockbroker or banker can assist the trustee. After completing the necessary documents, a broker or banker arranges to forward the certificates to the transfer agent. The transfer agent issues new certificates in the name of the trust, as discussed above.

A trustee may experience delays in receiving new certificates, because of the need for security and the transfer agent’s workload. If significant transfers of registered securities are anticipated and speed of transfer is critical, it may be preferable to create a separate nominee partnership to hold title to the securities.

Alternatively, if there is considerable trading activity, securities may be held in the broker’s street name account (i.e., the broker will retain the securities in its name). This is the simplest approach only when the trust maintains sufficient trading activity. It should be noted that stock held in a street name account can be used by the stock broker for its own use, thus exposing the settlor’s assets to greater liability. For this reason alone, a settlor may wish to avoid the use of a street name account.

Unregistered securities (i.e., those in bearer form) present no particular transfer problems, and obviously there are no registration problems. A short form of assignment from the settlor to the trustee of the trust should be executed. For example:

The undersigned hereby assigns all right, title, and interest in and to the following securities to John Doe and Jane Doe, as Trustees of the Doe Family Trust, dated _____________.

This assignment should describe the property with some specificity to adequately evidence the settlor’s intent that it be considered a trust asset.

If the settlor has U.S. savings bonds and wishes to register them in the name of the trustee, he may find information about how to do so at www.treasurydirect.com. Bonds re-issued to a trust are no longer issued in paper form but, instead, are issued as electronic bonds in TreasuryDirect. This is an important item for your trust funding checklist.

3. Tangible Personal Property

Because tangible personal property, such as household furniture and furnishings, jewelry, antiques, artwork, and the like, is without any recognized documentation of title, funding of this property is done by using a simple assignment from the settlor to the trustee (in the same manner utilized in funding bearer securities). However, in that tangible personal property changes constantly and continuous additional assignments would be impractical, the initial assignment should cover “any and all tangible personal property now owned or hereafter acquired.”

4. Bank Accounts

Generally, the simplest method in handling checking and savings accounts is to open new accounts in the trust’s name:

John Doe and Jane Doe, as Trustees of the Doe Family Trust, dated ___________.

This statement is the formal registration for these accounts as trust accounts. It must be identified as that when recorded on the signature card. Trust identification does not have to appear on checks, savings statements, or passbooks, but it must appear on the financial institution’s records.

Savings certificates and other time deposits are handled in the same way.

5. Life Insurance

Whether or not life insurance should be funded to the trust depends on a variety of circumstances, which are different for every person. If a settlor wants his life insurance in the trust, he must change the beneficiary to the trust. For example:

The then-acting Trustee or Trustees of the Doe Family Trust dated ________________.

It is recommended that the settlor check with his insurance agent for guidance as to whether or not his life insurance should be funded to his trust. If a policy has cash value, it may be necessary to change both its ownership and the beneficiary designation.

6. Retirement Benefits

Trust funding checklist item 6: The vested portion of retirement benefits is made payable to the trustee in the same manner as life insurance. However, careful planning and analysis is necessary before retirement benefits are funded to a trust.

If the settlor has his own pension or profit sharing plan, an attorney can make the necessary designation. To guarantee any nontaxable status which these benefits might have, care should be taken to assure that the trust agreement insulates these benefits from claims and expenses in the settlor’s estate. There are two methods to name the trust as recipient of retirement benefits, depending upon the terms of the pension trust. The trust is named either in the insurance policy, if one exists, or by completing a document called a Designation of Beneficiary Form.

Generally, it is advisable for a person to name his spouse as the first beneficiary of a retirement benefit, including an Individual Retirement Account (IRA).

7. Closely Held or “Family” Corporations, Partnerships, & Limited Liability Companies

Transferring business interests into a trust is a complex situation with many variables to consider. It is recommended that the settlor consult with an attorney to determine the best course of action.

Miscellaneous Items for trust funding checklist

As one might surmise, there are many other types of assets not discussed in this chapter. If a person has assets of significant value and he wants to put them into the trust, he should contact an attorney for suggestions to help him achieve his goal.