Setting Up and Funding a Trust: A Step-by-Step Guide
By Robert Steiner MS, M.Ed, JD
Establishing and funding a trust is a crucial step in effective estate planning, offering benefits such as avoiding probate, minimizing estate taxes, and ensuring the efficient management of assets. Here’s a comprehensive overview of how to set up and fund a trust to achieve these goals.
Setting Up a Trust
1. Determine the Type of Trust: Decide on the type of trust that best fits your needs. Common types include revocable living trusts, irrevocable trusts, and special purpose trusts (like charitable or spendthrift trusts). A revocable living trust allows you to retain control over the assets and make changes as needed, while irrevocable trusts typically provide more robust tax benefits and asset protection.
2. Choose a Trustee: Select a trustee who will manage the trust assets according to your instructions. The trustee can be an individual (such as a family member or friend) or a professional entity (such as a bank or trust company). For a revocable living trust, you often act as your own trustee during your lifetime, with a successor trustee named to take over upon your death or incapacity.
3. Draft the Trust Document: Work with an attorney to draft the trust agreement. This legal document outlines the terms of the trust, including the trustee’s powers and duties, how assets will be distributed, and any specific instructions or conditions. The trust agreement must be detailed and legally sound to ensure it meets your objectives and complies with state laws.
4. Sign and Notarize the Trust Agreement: Execute the trust document by signing it in the presence of a notary public. Some states may have additional requirements, such as witness signatures. Ensure that all formalities are met to validate the trust.
Funding the Trust
1. Identify Assets to Transfer: Determine which assets you want to place into the trust. Common assets include real estate, bank accounts, investment accounts, personal property, and business interests. Review all assets to ensure they are eligible for transfer into the trust.
2. Transfer Ownership of Assets: Change the ownership of the assets from your name to the name of the trust. This step is critical, as the trust only controls assets that are formally transferred into it. Here’s how to handle different types of assets:
- Real Estate: Execute a new deed transferring the property from your name to the name of the trust. This typically involves preparing and filing the deed with the local county recorder’s office.
- Bank Accounts: Contact your bank to change the account ownership to the trust’s name. This usually requires providing the bank with a copy of the trust agreement and filling out specific forms.
- Investment Accounts: Work with your investment advisor or financial institution to re-register securities and accounts in the name of the trust. This often involves providing a copy of the trust agreement and completing their required forms.
- Personal Property: For valuable personal property (e.g., jewelry, artwork), create a written list or inventory and assign these items to the trust. You may also need to update titles or ownership records for certain items.
- Business Interests: If you own a business, amend the business’s ownership documents to reflect the trust as the new owner. This may involve updating partnership agreements, stock certificates, or other relevant documents.
3. Update Beneficiary Designations: Review and update beneficiary designations on assets such as life insurance policies and retirement accounts to align with the terms of the trust. This ensures that these assets are distributed according to your wishes, either directly to the trust or as otherwise specified.
4. Review and Monitor the Trust: Periodically review the trust and its assets to ensure everything is properly funded and aligned with your estate planning goals. Make adjustments as necessary, especially if you acquire new assets or experience changes in your personal or financial situation.
Conclusion
Setting up and funding a trust involves several important steps, from selecting the right type of trust and drafting the legal document to transferring assets and updating beneficiary designations. By carefully following these steps and working with legal and financial professionals, you can establish a trust that effectively manages and protects your assets, ensuring your estate is handled according to your wishes.
For further information or to discuss any legal matters, please contact Attorney Robert Steiner at (205) 826-4421 or via email at robert@steinerfirm.com. Whether you have questions about this article or need personalized legal advice, he is available to assist you.
