Planning for what happens to your assets after your death is essential. Most people have a general understanding of the importance of this task, but their knowledge ends there. Estate planning can mean having a Last Will and Testament (will), but many times a trust is recommended to fully protect your assets after your passing. If you do make the decision that a trust is right for your circumstances, it is important to understand how to fund a trust so that it is legally and financially compliant. Contact an experienced Texas estate planning attorney at The Law Office of Jason Carr by calling (214) 800-2366 for a consultation and to get your estate planning questions answered.
What Is a Trust?
A trust is a document that gives the trustee the power to hold title to property/assets to distribute those assets per the wishes of the grantor. Specifically, a trust states a person’s wishes for how and when their assets are transferred to beneficiaries or charities. The Texas Trust Code governs Texas trusts and provides helpful definitions.
How To Establish a Trust
If a trust is established and executed incorrectly, it can completely void the purpose of having the trust. People who have trusts created do so to protect their assets, so that those assets are distributed how they choose – to the people they choose. Many assets can be included in a trust, including real estate, stocks, cash, tangible valuables, and more. The grantor (the person who owns the trust) will have to decide what assets they have and what to place in the trust. The grantor must also identify who the beneficiary or beneficiaries will be, which can be as many people and/or charities/organizations as they would like.
When a trust is being formed, the grantor can also choose any rules for the distribution of assets. A very important decision made by the grantor is the choice of a trustee. The trustee will manage the trust—this is most often either a friend or family member or a professional trust administrator like a bank.
Funding the Trust
Once a trust is formed and the legal documents are signed, the trust must be funded. Many different types of assets can be included in a trust, so the process for funding varies depending on the type of asset. The following are different ways a person may fund a trust.
A deed transferring the interest in the property to the trust is typically required. The deed is recorded with the county where the real estate exists. It might be necessary to contact the County Recorder’s office for the exact requirements, as counties can vary. The new deed must have the exact legal description, or it can result in legal and financial challenges at a later time.
Whether titled or untitled, there is often a large amount of personal property to be transferred after death. If the personal property is titled (such as a car), a person may want to consult with an attorney at The Law Office of Jason Carr to decide if the title should be transferred on death to the trust, or if the asset should be re-titled in the trust’s name immediately. If the asset is untitled, a transfer document can be kept with the trust to list those assets, either generally (such as furniture or jewelry) or specifically (naming particular objects).
Banks have their own requirements for transferring accounts to a trust, so it is important to contact the individual bank for their process. Banks often have their own forms to be filled out and signed. The bank will most likely require a Certificate of Trust.
If the business is an LLC, the operating agreement should be checked to see if there are any restrictions or requirements for transfers of interest. An Assignment of Interest is typically signed, and a copy should be provided to all members or partners. The process for other types of businesses may differ slightly.
Stocks and Bonds
The process for privately held stock and publicly held stock is typically different. Privately held stock can usually be transferred by surrendering the existing stock certificates and having new ones prepared, but it will most likely require the approval of the corporation. Transferring publicly held stock or bonds will likely need the assistance of a stockbroker.
Not all assets need to be transferred into the trust immediately. As with life insurance policies, the trust should become the beneficiary of the policy rather than “owning” the policy. There are also types of retirement accounts where retitling the account can have adverse tax consequences. Instead, the beneficiary designation should be changed so that the trust is the new beneficiary instead of a person.
What Are the Consequences of Not Funding a Trust Properly?
The consequences of not funding a trust properly can result in legal and financial challenges. Ultimately, it can potentially negate the entire intention of the trust. If this occurs, the property could end up in probate. Probate can be a long and expensive process for the family and friends of the deceased. It is important to understand all of your legal and financial rights when it comes to estate planning. If you would like to consult an experienced Texas estate planning attorney regarding the estate planning process, or how to fund a trust, call The Law Office of Jason Carr at (214) 800-2366 for a consultation today.