29 Apr What Do You Mean a Trust? Part 2
By David Harris 2/2/17
Last week’s article was all about “Revocable TRUSTS” and many of the basic reasons why we may want to have a trust as the central piece of our estate plan. The article touched briefly on one of the most essential parts of the trust creation, which would be “FUNDING a TRUST”.
Why is this so important?
THE IMPORTANCE OF FUNDING A TRUST
Imagine designing and building your dream home. You would spend a great amount of time, effort and expense to ensure that your new home was perfect. Now the time has come to move in and enjoy your beautiful house. From the outside, the house is exactly as you had hoped. With excitement, you open the front door and reach for the light switch. BUT only to find there is no electricity, no appliances, no furniture, no pictures on the wall, and essentially the house is bare! You cannot enjoy the house you tried so hard to create. We find this to be true with many of the Revocable Trusts we have reviewed. Clients have a well written document with every detail considered. But in the end, the Trust is only partially effective, since little or nothing has been transferred into the Trust.
HOW DO WE GO ABOUT FUNDING THE TRUST?
Funding a trust simply means transferring assets from your personal name, into the name of the trust. The manner that an asset is transferred is dependent upon the asset itself. For example, real property is transferred to a trust via deed, recorded in the county recorder’s office, where the real property is located. Checking accounts, savings investment accounts, and other similar accounts are transferred. This is done by updating the owner information with the financial institution. Funding assets (such as life insurance and retirement) to a trust is handled a little differently. The trust may be named as a beneficiary, rather than transferring the accounts to a trust. Therefore ownership in those accounts should always remain with the individual.
SPEAK WITH A PROFESSIONAL FIRST!
Prior to transferring a retirement account to a trust, consultation must be made with an attorney or other professional. This ensures that the trust qualifies to be named as a beneficiary of a retirement account and that it’s terms pass certain IRS requirements. In Southern Utah, many clients own a small business in the form of a corporation or a limited liability company. Careful attention must be given to transferring ownership in a corporation or LLC., so as not to violate any IRS provisions. This also ensures that transfer restrictions are not violated within the organizational documents (operating agreement and shareholder agreement) of the legal entity.
Just remember- When you create your dream home, make sure the electrician, the finish plumber, the movers and the decorators have finished their jobs. You know, so that you can actually enjoy your creation.
FULLY FUND YOUR TRUST
We find that the best Estate Planning Attorneys already include the “funding” in their trust creation package. Next week we will talk about 3 other crucial documents that every good Trust should have!
Investment advisory services are offered through BCJ Capital Management, LLC., an SEC Registered Investment Adviser.
Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein. BCJ FG 17-421