Tuesday, 21 May 2024

Estate planning: Funding your living trust

A trust only controls the assets that are held in the name of the trustee, i.e., as legal owner. Many people establish living trusts – known as the settlor(s) – but then neglect to properly transfer assets into their trust that should have been included.

Leaving assets out of trust may result in an otherwise avoidable probate, so undoing one of the main advantages of having a living trust.

For married persons and registered domestic partners, transferring assets into their trust entails the additional requirement that the existing community and/or separate property character of the assets be preserved as such.

How assets are transferred varies with the asset in question. The following discussion is a glimpse into how assets are transferred under United States laws. Some asset transfers require the assistance of professionals (e.g., attorneys, brokers, transfer agents, etc.).

Real estate is transferred by means of a notarized trust transfer deed that names the trustee(s) as the grantee (owner). Also, the county’s preliminary change of ownership report (PCOR) is completed and submitted with the deed. This does not trigger a change in assessed value.

Personal property (such as furniture, furnishings, jewelry, etc.) is transferred by means of a general assignment granting ownership to the trustee(s). Except in limited circumstances, no title documents are involved, but any insurance on valuables (e.g., jewelry) should list the trustee as an insured party.

Financial accounts are retitled in the name of the trustee. This sometimes may require a new signature card with each bank. Also, it may sometimes result in a new account being created, depending on the financial institution.

Stocks and bonds must also be transferred into the trust. If securities are held in the “old-fashioned” certificate form, then these certificates must be surrendered to receive newly titled certificates in the name of the trustee(s). This involves the services of a stock broker and/or an authorized transfer agent. Otherwise, for securities held in account form, just provide letters of instruction and/or complete the company’s paper work, as required by the financial institution.

Promissory notes (IOUs) owned by the settler of the trust should be transferred by means of an assignment of note, and the original note endorsed by the settler over to the trustee. The borrower should be notified in writing to make all future payments to the trustee, as such.

Debts secured by deeds of trusts (or mortgages), recorded against real estate, entail both an assignment of the promissory note and its related deed of trust. Like a trust transfer deed, a newly notarized deed of trust naming the trustee as the grantee is recorded with the county, together with a PCOR.

With respect to business interests in domestic (not foreign) legal entities (e.g., partnerships, corporations, LLC’s), the membership interest must be reissued in the name of the trustee. This entails an assignment as well as working with the general partner or the secretary of the corporation (or LLC) as the case may be, to have the entity recognize the trustee as the new owner.

Documents required by the Secretary of State (in the state where the legal entity was created), by the IRS and tax authorities, must also be completed.

In conclusion, funding a trust is an ongoing process. As assets are sold and new assets acquired the appropriate steps in transferring assets must be taken.

Dennis A. Fordham, attorney (LL.M. tax studies), is a State Bar Certified Specialist in Estate Planning, Probate and Trust Law. His office is at 55 1st St., Lakeport, California. Dennis can be reached by e-mail at This email address is being protected from spambots. You need JavaScript enabled to view it. or by phone at 707-263-3235.

Follow Lake County News on Twitter at http://twitter.com/LakeCoNews and on Facebook at http://www.facebook.com/pages/Lake-County-News/143156775604?ref=mf .

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