Many people think that once they’ve created a trust, their estate plan is complete and they can sit back and relax. This isn’t so. In order for your trust to work the way it was designed, you have to fund the trust with your assets. Usually, we do the heavy lifting regarding transferring your home and other real properties into your trust. We prepare deeds for our clients’ California real properties, and we advise clients on how to get their out-of-state real properties into their trusts.
What we don’t do, and what we can’t do in a manner that is practical and affordable to our clients, is to transfer your accounts into the trust. Each financial institution has its own forms and procedures, and they won’t talk to us anyway. We can’t walk into the bank and tell them to transfer your Certificates of Deposit into the trust because our names are not on your account. It’s your account, so you’re the one who has to do it. We do, of course, provide clients with a Certification of Trust to facilitate this, and trusts have been around for awhile so you’ll never walk into any financial institution in the United States that doesn’t know how to help you when you want to fund your trust.
If you are helping out your parents or other family members with their trusts, an account is in the trust is the statement says something like “Joe Smith, Trustee Joe Smith Trust u/t/d 10/08/2015.”
What happens if you don’t fund your trust before you die? That depends on how the unfunded assets are titled. Accounts may pass to joint tenants or pay-on-death beneficiaries, or they may be a part of your probate estate. If you die and your probate estate is worth under $150,000, then it’s not too complicated - your heirs can collect the account directly using a Small Estate Declaration. But if your probate estate is worth more $150,000 or more, then your estate is usually subject to probate in the courts even though you spent all that money on lawyer fees creating a trust.
What goes into your trust? As a rule, everything, with three exceptions.
1. Keep your checking account out of the trust, and eventually add a trusted family member to the account so that he or she can immediately write checks to pay your bills in the event of your death or incapacity.
2. Retirement Accounts can’t go into a trust when you are alive without you cashing them in and paying all that income tax at once. Do make sure that you have named the right people as retirement account beneficiaries, and never name a trust as beneficiary unless you are advised specifically to do so.
3. Automobiles, mobile homes and boats registered with the DMV or the Department of Housing don’t need to be in a trust, because their value doesn’t count against the $150,000 amount that triggers probate administration in the courts.
The bottom line - make sure your trust is funded with your assets and if you’re not sure about how to do it, ask. If you get the job done it will make things easier for everyone when you’re gone.
Len & Rosie