Once a living trust is in place (also called a declaration of trust), it is important to fund the trust in order to minimize future risk and expense. “Funding” a trust means changing the way the person who made the trust – called a grantor – holds title to his or her assets, from the grantor’s name individually to the person named as trustee of the living trust (the grantor and the trustee who administers the living trust are often the same person). Types of assets that should be re-titled in many cases include real estate (e.g., a home), bank accounts, certificates of deposits, savings bonds, investment accounts, LLC membership and partnership interests, and stocks and stock options. Re-titling assets into a living trust does not require the trustee to obtain a separate tax identification number or to file a separate tax return during the grantor’s lifetime (i.e., any income generated by trust assets is still reported using the grantor’s personal social security number).
In addition to re-titling certain assets, the grantor should make sure proper beneficiary designation forms have been submitted and accepted for “pay on death” assets, such as life insurance policies, annuities, and retirement account assets. It is best to consider all options when naming primary and contingent beneficiaries. There are pros and cons to naming a living trust as a beneficiary. Retirement account assets should not be transferred or re-titled to a living trust (e.g., an IRA, 401(k), pension plan, or qualified retirement plan), but post-death beneficiary language should be carefully considered. Due to the complexity of federal tax laws, additional risks, complications, and delays can arise when a trust is designated as beneficiary of retirement account assets as opposed to an individual beneficiary. Other considerations should also be taken into account (e.g., the grantor’s descendants are minors or have special needs; the grantor wants to make gifts to charities).
If you have questions or would like our assistance to make sure your assets pass to the persons and in the manner you chose, we will be happy to hear from you. It will be helpful if you have made
a list of your assets that, including estimated values, information how assets are titled (e.g., individually or jointly with someone else), and any debts (e.g., mortgage), ownership obligations, and other restrictions (e.g. pre-nuptial agreement, divorce decree, loan documents, buy/sell agreement) that may limit your ability to dispose of your property. We do not offer investment advice and suggest you talk with your accountant, financial planner and insurance professionals.