Why It’s Called a Trust Fund

Why It’s Called a Trust Fund

By Richard E. Phillips

Creating a Trust is a two-step process. The first step is creating and signing your Trust Agreement, the private contract between you as creator of your Trust and your Trustee (sometimes also you).  Your Trustee manages the Trust according to the terms of your Trust Agreement.

But that’s only the first step.  The second and critical step in the Trust process is retitling assets into your Trust or designating the Trust as a beneficiary of an asset upon your death.  This process of re-titling assets into the name of your Trust is oftentimes called “funding” the Trust.  Funding is critical to your Trust working as you desire.  Because a Trust without assets funded into it is a worthless piece of paper.  Below by section is a description of how some common types of assets are re-titled into your Trust.


Real Estate

Your real estate is funded into your Trust by having a new deed drafted that conveys title from you to the Trustee of your Trust.  What if there is a mortgage on the property?  Do you need the lender’s permission to fund it into your Trust?  The simple answer is ‘no’ for residential real estate, but ‘probably’ for commercial real estate and multi-unit dwellings.  Federal law allows individuals to convey a real estate interest into a Trust without triggering the mortgage’s “due-on-sale” acceleration clause.  The plain language of the law reads “real estate.”  However, lenders usually interpret that to mean only “residential real estate.”  Prudence suggests getting the lender’s pre-approval for funding commercial or multi-unit real estate into your Trust.

What if you own your interest partially with other persons?  If you own your interest as tenants-in-common, this means each person owns a separate share that can be conveyed separately.  Therefore, you can convey your interest in the property into your Trust by quitclaim deed without affecting the interests of the other property owners.

If you own real estate with another person as joint-tenants-with-right-of survivorship, however, this means you don’t own separate shares of the property.  Each joint owner has a 100% stake in the property.  When the first person dies, the whole value of the property conveys to the surviving owner.  You would need to get the other joint owner’s written permission, usually by a new deed, to break the “right-of-survivorship” provision in the current deed in order to convey your interest into your Trust.

Bank Accounts & Certificates of Deposit

The transfer of Bank Accounts, Savings Accounts and Certificates of Deposit (CD’s) into your Trust can be accomplished by providing your bank with a copy of the Certificate of Trust which your estate planning attorney has prepared for you. The Certificate of Trust is a 3-4 pages summary of your Trust Agreement and allows you to fund your Trust without having to give a financial institution a copy of your whole Trust Agreement.  You will then sign new signature cards as Trustee of your Trust. Generally you will not have to open new accounts to replace existing accounts; the only change is on the bank signature cards. For a checking account, you generally do not need new checks.

You can fund your credit union accounts into your Trust.  However, most credit unions require that the master account remain in your individual name, but your sub-accounts can be re-titled into the name of your Trust.

When you open up new accounts, simply instruct the bank that you wish to have the title of the account in the name of your Trust. You may need to provide the bank with a copy of the Certificate of Trust.

Brokerage & Mutual Fund Accounts

For a standard brokerage (and/or a mutual fund) account, all that is generally required is a request to the broker or account manager. The financial institution usually will require a copy of the Certificate of Trust.

Stocks & Bonds

To transfer stocks or bonds into the name of your Trust, a different procedure is used for privately held stock compared, such as stock in a family-owned business compared to publicly-traded stock.

  1. Privately Held Stock

The transfer of privately held security instruments, such as stocks in a privately held corporation, can be accomplished simply by surrendering the existing stock certificates and having new stock certificates prepared in the name of the Trust. This normally does not require a permit from a state agency, nor does it usually have any type of adverse tax consequence. However, the transfer of stock in a privately held corporation normally requires the approval of the corporation. Typically, such consent will be granted by the corporation after it has reviewed the Certificate of Trust and the appropriate assignment documents have been executed. Shares of individual professional corporations are usually not transferred to trusts because of statutory restrictions.

  1. Publicly Held Stock

In the case of publicly held stocks or bonds, it will be necessary to work through a stockbroker or through the institution from which the assets were purchased (such as a Dividend Reinvestment Plan or an Electronic Registration Plan). If you currently possess the certificate(s), the broker will require you to surrender the certificate(s) and sign certain transfer documents. Physical certificates should always be sent certified mail.  However, electronic dividend reinvestment accounts are much easier to transfer and usually require a written request and a copy of your Certificate of Trust.

Life Insurance & Annuities

If you wish the proceeds of your life insurance policies or annuities to be distributed in the same manner as the other trust assets (which is usually the case), the Trust should be the beneficiary. You must instruct each insurance company or your insurance agent to designate your Trust as the beneficiary.

IRAs, 401(k)s & Pension Plans

An IRA, 401(k) plan or pension plan, wherever invested, must remain in the owner’s name and Social Security number; this is not a major problem in estate planning since the account is paid, at your death, to a named beneficiary and, thus, does not have to go through probate. However, it may be desirable to have the account paid to your Trust instead of to a named beneficiary (e.g., the beneficiary is a minor or the Trust has more details for all contingencies); For a husband and wife, the non-owner spouse is usually named the primary beneficiary and the Trust may be named the contingent beneficiary. Any change of a beneficiary designation of a retirement plan could have important income tax consequences; therefore, you should consult with your tax advisor prior to making any change.

Personal Property & Motor Vehicles

Personal property such as furniture, household effects, art work, jewelry, automobiles, RVs, boats, etc. should be transferred to the Trust. Your estate planning attorney should draft an “Assignment of Personal Property” document.  This document assigns all of the above-mentioned personal property into your Trust. This Assignment covers not only the property you currently own but any additional personal property acquired up to the date of death. 

Limited Liability Companies

A trust can be a member of a limited liability company (“LLC”). The transfer of a LLC interest to a Trust may require the approval of the LLC. Typically, such consent will be granted by the LLC after it has reviewed the Certificate of Trust and the appropriate assignment documents have been executed.

If you acquire any future LLC interest, simply instruct the LLC that you wish to hold title in the name of your Trust. You will probably need to provide the LLC with a copy of the Certificate of Trust.

Why You Should Consider Trust Planning

Why You Should Consider Trust Planning

By Richard E. Phillips


When most people think about estate planning (if they think about it at all), most people believe their best or only option is a will combined with some joint tenancy or transfer-on-death arrangements for their financial accounts.  However, there is a superior method to estate planning that’s existed for several hundred years and allows you to peacefully and privately transfer your wealth after you die to your loved ones.  This method is an estate plan built around a revocable living trust.

Like a will, a trust is a legal document which addresses how your estate will be administered and disposed of after you die.  However, there is an important difference.  A will is a testamentary document by you that does not take effect until after you pass away.  Until then, it does nothing for your estate.  Furthermore, after you die, the will must be qualified publicly before your local probate court as part of a potentially very expensive government administration.

Unlike a will, a trust is a private contract between you as creator of the trust and the one who is re-titling your assets into the name of your trust (very important!) and you as the manager of the trust assets.  The trust is effective immediately upon you signing your trust agreement and will successfully manage your estate upon your incapacity or death, so long as your assets remain titled in the name of your trust or the trust is designated as a beneficiary of your assets.

The main advantages of estate planning through a revocable living trust over other basic estate planning options are the following:

  1. Avoids probate.
  2. Privacy.
  3. Incapacity Management.
  4. Maximizes Death Tax Exemptions.
  5. Flexibility.

Avoids probate.  Since a trust is a private contract which determines the terms of how its assets are to be managed upon your incapacity and death, there is no need to have a third party bureaucratic entity administering your estate.  The main reason for the probate process is to change title to property from a dead person’s name to that person’s living beneficiaries.  With a trust, however, you already retitled your assets during your lifetime out of your individual name and into the name of your trust.  Thus, when you die there are no assets owned in your individual name.  Therefore, your estate has no reason to go through probate.

Privacy.  Because a trust is a private document which is administered privately, there is no need of the public process of probate.  No need to have your assets sold at a public estate auction nor will your loved ones be bothered by people looking to take advantage of your estate because they could review your will at the probate court.

Incapacity Management.  If you have only a simple will drafted, but you become incapacitated during your lifetime, who will handle your financial affairs for you?  If you don’t have an appropriate power of attorney document in place for such a contingency, there would have to be a guardianship proceeding, known as “living probate,” where the court (not you, not your family) decides who will manage your affairs for you.  With a trust, however, you can appoint the person who not only will manage your estate after you die, but also in case of your mental incapacity.

Maximizes Death Tax Exemptions.  Death taxes have been a plague on transferring wealth for decades.  But the fallout from possible death taxes worsens when a family estate plan does not take this issue into account.  Every individual is entitled under the law to exempt up to a certain amount of his or her estate after death from the federal death tax.  Most couples, however, unwittingly forfeit the use of the first spouse’s death tax exemption by either electing to use the unlimited marital deduction at the first spouse’s death or deciding that it’s best to own joint property in both their names as joint tenants with right of survivorship.

Unfortunately, when a couple owns property together as joint tenants with right of survivorship (or tenancies by the entirety with right of survivorship), the right of survivorship provision applies immediately and transfers the entire property interest into the surviving spouse’s estate.  Thus, the first spouse to die’s death tax exemption will not apply to those assets no longer in his or her estate.  A trust, however, is a very flexible agreement that can allow the property of the trust to be allocated between both spouse’s estates and maximize the use of both spouse’s death tax exemptions.

Flexibility.  As you have read, a trust is a versatile and flexible document.  This flexibility is further apparent in how it can work with your transfer-on-death (TOD) accounts in leaving a lasting legacy to your children and grandchildren.

For example, suppose you have two adult children.  One is very responsible, but the other is financially irresponsible.  Typically, most parents designate their children individually as the beneficiaries of their financial accounts without considering how they can protect the wealth they’re leaving from a child’s creditors or future ex-spouse.  Instead, you can establish trusts in your revocable living trust agreement for each of your children (and potentially grandchildren) which take effect on the surviving spouse’s death.  The share you leave to each child resides in the trust created for them and protects the assets which reside in the trust from that child’s creditors or ex-spouse.  It just depends on the terms you want drafted.  Therefore, you designate your trust as the beneficiary of your TOD accounts instead of the children in their individual names.

You can provide peaceful wealth preservation for your family and you don’t have to a Rockefeller or a Gates to afford this type of planning or take advantage of what this kind of estate planning offers your loved ones.