Updated 3/20/04
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What is funding?
How to amend the Trust
How to title Real Estate and Investments
Using Joint Tenancy
Where do you start?
How to transfer Life Insurance and Annuities
How to transfer IRA/Keogh and Pension Benefits
How to transfer Bank Accounts
How to transfer Deeds and Trust Deeds
How to assign Trust Deeds
Homeowner's Exemption
How to transfer Stock
Automobiles--Why we don't transfer
Tangible Personal Property Items
What about Income Tax Returns and Tax I.D.'s
Using "Self Funding Letters"
What is "funding the trust"? It is important that you understand some of the fundamental requirements of your "LIVING TRUST", so that it can properly function. As you are undoubtedly aware, the primary reasons for the creation of a living trust are: (1) to provide a means for continuity of ownership and management of your assets in the event of your incapacity, disability or death, (2) to avoid probate at the time of your death, and (3), in some cases, to avoid burdensome estate taxes. In order to attain these goals, it is essential that all of your major assets be transferred into your trust and that any assets which you acquire from this point forward be acquired in the name of your trust.
Keeping the Trust Funded. Although executing the trust documents provides you with an orderly disposition of your estate, you will not avoid probate unless and until the trust obtains legal title to your property. This procedure is called "funding" the trust. Documents of title must be executed to fund the trust. You will need new signature cards for the trust bank accounts and new documents of title (deeds) for your real property. Benefits from your insurance and employee plans of single persons may be directed to the trust in the event of your death. Title to assets you acquire in the future should be put in the trust's name; if you take title to property in your own name, and not as trustee, you will undo the trust to that extent. Recognizing that banks, or other companies may have their own shorthand legend and abbreviations for the trust designations, or may state the information in a different manner and/or order, we suggest the following ways of holding title to assets in the trust.
(1) AMENDMENTS. These documents are executed with certain formalities and can be changed or revoked only by using similar procedures. A note in the margin of your document, or a striking out of words, even next to your signature, is ineffective. We cannot overemphasize the need to follow the proper steps for amendment.
You should complete a Trustworthy notice of amendment form, and execute a new Trustworthy page containing your amended provisions. Be sure to sign, date and initial on the new replacement page. You should not destroy the old page, but should insert the amendment form and new page either at the page that is amended, or at the beginning the trust, where it can be found.You may, if you wish, write "revoked" date and sign your name on the old page.
(2) REAL ESTATE In general, title to real estate should be held as follows: (Smith shall be used for all illustrations) GERALD L. SMITH, trustee of the SMITH FAMILY TRUST under instrument dated January 1, 1992.
or where two trustees are serving as initial or successor trustees--
GERALD L. SMITH and SALLY DAUGHTER SMITH, trustees of the SMITH FAMILY TRUST, under instrument dated January 1, 1992.
ABREVIATIONS. For some investments, stock, bank accounts, etc. or in some situations, you may abbreviate the trust designation, e,g.,
GERALD L. SMITH, trustee, UTD, 1/1/92.
or GERALD L. SMITH & SALLY D. SMITH, trustees, UTD 1/192
or GERALD L. SMITH and/or SALLY D. SMITH, trustees, UTD 1/192
(U/T/D stands for Under Trust Declaration.) An "and" designation usually requires two signatures. Your Trustworthy trust allows for one signature under paragraph 6.3(l). but generally only for any investments which presently allow one signature (such as bank accounts). You will still need two signatures on real property deeds, stocks, etc unless the trustees each have independent powers. When one signature is allowed on non real estate assets (primarily bank accounts), use "or" instead of "and" if the financial institution allows it.
INDEPENDENT POWERS: If you named both initial trustees and selected "independent powers" on page 1 of your trust, either trustee can generally exercise any power stated in Article Six of the trust including the sale of real estate.
(3) LIFE INSURANCE & ANNUITIES. Life Insurance and Annuities should be payable to your trust as a primary beneficiary. Always check with your insurance/annuity carrier, or pension death benefit representative. Try to obtain a "change of beneficiary" form specifically designed for a trust, NOT an "estate", or use the Trustworthy funding letter for insurance. A trust beneficiary form always asks information readily available such as the name and date of your trust, trustees, etc. If there is no form available for your trust, you may then use a regular change of beneficiary form from your insurance company. If you must use their form the beneficiary designation form whencompleted should look like this where Sally is the successor trustee. (Do not name yourself as trustee unless you are Houdini):
PRIMARY BENEFICIARY - "SALLY D. DAUGHTER, trustee (or her successor) of the SMITH FAMILY TRUST dated ____________________, 19___."
SECONDARY BENEFICIARY - (May be left blank)
(4) PENSIONS and DEFERRED COMPENSATION PLANS are not recommended to be paid to a trust. Pension plans, IRA and KEOGHs, PERS, STRS, etc. are already a trust, but may require a change of beneficairy form to be submitted to meet your Estate Planning and Trust objectives. If you are entitled only to a defined benefit plan, where you receive a specific dollar amount each month (generally based on number of years of employment and salary) there is generally nothing to fund to the trust at your death, as the pension simply drys up when you die. In any event, you cannot put the funds or investments held in a KEOGH/IRA type plans directly into the name of the trustee of your trust (like a stock or bank account) without taking a taxable distribution.
However, you can direct any remaining funds in the plan to be paid over to the successor trustee of your trust as a lump sum death benefit. It is recommended to avoid paying Keogh benefits to the trust as the trust, estates, and charities, etc. are not generally considered to be "qualified" beneficiarys. The result would be that the proceeds would be income taxed at time of distribution to the trust. If there is a special situation such as a beneficiary who is on drugs, spendthrift, gambler, etc. and it would be worth taking the risk of income taxes to protect the beneficiary, then obtain and sign the special amendment for payments of pension benefits to a trust. To obtain one click here.In some cases there is a guarantee to pay a fixed dollar amount to your beneficaires for a certain number of years if you die during the guaranteed period (often 10 or 15 years). The funds then could be administered by your successor trustee to meet some objectives of your trust, such as paying bills, delaying distributions for young persons, providing for "special needs" protecting incompetents or spendthrifts. You should obtain change of beneficiary forms from your pension plan, banks, or pension representative for lump sum distributions (death benefits). You should complete the change of beneficiary form for each lumpsum entitlement, and send the original executed forms to the appropriate institution. These changes are not effective until received and acknowledged by the companies. Always try to obtain a form for payment to a living trust. If not available use the Trustworthy E-Z Form funding letter, click here.
The beneficiary form should be filled in as follows:
PRIMARY BENEFICIARY - "SALLY D. SMITH, trustee (or her successor) of the SMITH FAMILY TRUST dated ____________________, 19___."
Contingent Beneficiary- may be left blank
(5) BANK ACCOUNTS. Many attorneys advise placing every asset, including checking and savings accounts into the trust. Trustworthy gives you two choices in this regard.
First, you may leave your regular checking account and perhaps a small savings account out of the trust, and simply add the successor trustee's name as an agent on the account. This would enable this agent to sign checks or use savings to pay bills and other expenses if you have a short term disability.
The second option is to transfer the accounts to your trust, and then authorize the successor trustee to use those accounts without having to "take over" or assume responsibility for the entire trust. This authorization is called "a deputy" designation. Check with your banks. If they allow such an authorization you probably should deputize one or two accounts for an emergency fund. If the bank does not allow such a designation then use "agency" or "power of attorney" on the checking and a small savings account for emergencies. The bank may request a copy of the entire signed trust instrument (or parts of it) for examination by their legal department and/or for their records. This is normal as the trust was written for them to use if you become legally incompetent or die. They are safeguarding your interests as well as theirs. Also, if you are expecting stock dividends or other payments to arrive in your name as trustee, those checks can only be deposited into an account which is in the name of the trustee of the trust. It is a very simple matter to change your account into the trust to avoid this inconvenience. We also recommend direct deposit into your accounts if possible to ease the successor trustee's burden in obtaining control upon assumption of the trusteeship of your trust.
(6) REAL ESTATE DEEDS. To transfer your residence and other real property to the trust, you as trustor must execute Trust Transfer Deeds (or other types of deeds as may be necessary) showing the property transferred to the trustee of your trust. After the deeds are executed, they must be sent to the county recorder's office to be recorded. There will be no reassessment of your California property under Proposition 13 as a result of this transfer. Under California Revenue and Taxation Code section 62(d), a "change in ownership" does not include any transfer into a trust if the trust is revocable by you. No transfer taxes will be due either. If you receive a letter from the county assessor asking you questions about the nature of the trust you have nothing to hide.
If you are transferring commercial property, or an apartment building which is not owner occupied and has more than 4 units, you will need to obtain consent of any lender prior to transferring the property. If your lender requests an attorney opinion letter, contact Trustworthy for such a letter.
****HOMEOWNER'S EXEMPTIONS****. If you are presently claiming a Homeowner's Property Tax Exemption (or any other exemption), after the new Trust Transfer Deed is recorded, you may receive a card or letter from the County Assessor asking you to refile for the Exemption. If you receive such a card or letter, just fill it in and mail it back to the assessor. For the purchase date, use the original date you purchased your home.
(7) DEED OF TRUST. To avoid a loss or interuption in the payments you are receiving from a Deed of Trust (TD) it is wise to assign the Note and TD to the trust. It is not necessary to transfer a Deed of Trust or Mortgage where you are paying money to someone else. Although it would be nice if we could leave our debts to someone after our death and burden them. To transfer any BENEFICIAL INTEREST IN A DEED OF TRUST, an Assignment of Deed of Trust must be prepared, executed, notarized, and recorded with the County Recorder.
(8) STOCK. The transfer of your stock to the trust must be accomplished by changing title on the stock certificates themselves. If you hold your shares through a brokerage firm, you need only to change the title on the brokerage accounts, rather than on each share certificate. If you have the actual certificates you can mail them back to the transfer agent listed on the stock following the instructions on the Trustworthy funding letter. Your broker can also help you make this change for a small charge per certificate. In general, title should be held as specified on the Trustworthy funding letters and as you would bank accounts and real estate, i.e. your name, trustee, name and date of trust.
Your stockbroker or financial planner should be able to tell you which designation would be preferred. When changing a brokerage account, your stockbroker may request a copy of the signed trust instrument for examination by his or her firm's legal department. You may or may not be asked to provide a copy of the entire agreement. Usually, a copy of Article One showing your name as Trustor, the name of the trust, Initial Trustees, and Successor Trustees, and a copy of Article Six (showing trustee powers), and the signature page with Notary block will demonstrate that the trust is properly executed and the trustee(s) have the necessary powers to borrow money; buy and sell stocks, bonds, and options; trade on margin; and conduct other trust business.
(9) AUTOMOBILES. You will generally not want to transfer title to any automobile(s) to the trust, as you would not want to disclose the existence of a trust in the event of an automobile accident. If you have transferred your home and other assets to the trust, your trustee will be able to change title at the DMV without probate by using the Pourover Will or the Assignment of Personal Property (Bill of Sale) found at the last page of your trust. See below in (7)
(10) Other Tangible Personal Property. You have transferred your personal tangible property items (furniture and misc. found in your residence(s) to the trust by the execution of a bill of sale (Assignment of Tangible Personal Property) attached to the last page of the trust instrument. We can provide appropriate forms directly or from the website for an airplane, a yacht, horses, copyrights, patents, or royalty contracts, etc.
(11) Tax Returns. The regulations under the Internal Revenue Code were recently amended to provide that newly established grantor trusts of which the grantor is trustee or co-trustee need not file a fiduciary tax return. Because you are the owner of all property in the trust, you will continue to report all trust income as though it were your own (on your 1040 form). These new rules obviate the need to obtain a tax identification number for the trust as long as you remain a trustee or co-trustee. You may give your own social security number when opening accounts in the name of the trust instead of a Federal Employers Number or Tax Identification Number (TIN) When you are no longer serving as trustee or if death occurs, the successor trustee will generally obtain a tax identification number. At that time, the trust must file a form 1041 return each year until termination as is the case in Probate.
(12) JOINT TENANCY. You should not hold any assets as joint tenants without consulting an estate planning attorney or Trustworthy. If improperly used, joint tenancy will totally avoid the trust, may frustrate your intentions, and could have adverse income tax consequences as the property will pass outside of the trust and possibly without complete forgiveness of any capital gains tax which would become due upon a sale after your death.
(13) GETTING STARTED. Here
are some tips on starting to transfer your assets to the trust. The goal here
is to start with the largest assets and "work down" to the smallest.
Since January, 1997, we can transfer in probate any combination of both real
estate and personal property valued in total at less than $100,000.00 in as
little as 90 days. We call this a "mini-probate". However, if you
have left no real estate out of the trust, and if all other assets are less
than $100,000.00, We can transfer those assets without any petition in probate,
however, legal costs will still be incurred in the preparation of documents
under Probate Code 13,100. Keep this in mind, because you may not wish to
trouble yourself with something like a small limited partnership interest or
investments caught in "reorganization" if there is an unusually high
transfer fee associated with the transfer, or perhaps if you other small
investments that you might consider a "nuisance" to change title on.
Our advice is to "work down" large to the small but troublesome
assets. Even though they may be small and troublesome, if you are going to
continue to hold those assets, it is generally easier for you to transfer them
to the trust now than it will be for the heirs to gain title to them following
death.
Return!
(14) SELF FUNDING LETTERS. We have enclosed a series of letters and forms which you may give to your banker, insu rance agent, broker, etc. (Find them under "Funding Letters" index tab in binder). It is recommended that you simply read the letter you are about to use. You may learn more from the letter that what is contained here. For most items to be funded there is one letter for a sole trustee (if you are serving alone) and another letter for co-trustees (where you are serving with someone else). These letters and forms should ease the work involved in the funding of the trust. These forms may not work or be accepted at all all institutions. However, if these letters are not accepted in a particular situation or by a particular institution, the official or instituion involved will usually tell you what must be done or what in house forms must be used to transfer title of a particular asset to the trust at their institution.
If the letter doesn't work, and no help is forthcoming from the institution involved, then give us a call. We will be happy to try and offer advice on how to proceed in that particular situation. Please let Trustworthy know if you have any questions which are not answered in this letter. We try to anticipate all the possible questions which might arise, or the problems you might run into, as you begin the process of changing title on your various assets, and, attempt herein, to give you some of the answers for those questions, and solutions to some of those very same problems that others before you have run into. Best wishes on a successful funding of your trust
If you have any particular difficulty in changing title or transferring assets to the trust, or if you have any other comments on any items that you think need more clarification in this letter, please let us know by e-mail. It is mainly through the feedback we receive from you, our trust clients, that we learn of any of the practical problems that are to be encountered out there, and, as we learn of them, incorporate the possible solutions into this information letter. Thank you again for allowing us to be of service to you.