Are you confused about the process of funding your living trust? We asked our resident expert, Kat Kolb, funding paralegal, about the process of funding a living trust with Hammond Law Group. This informative Q&A will educate and prepare you for the funding process. Hammond Law Group makes it so easy you might even enjoy the process! If you’ve already funded your trust, this information will help you avoid confusion when acquiring new assets and adding them to the trust.
Q. What is the main thing you want clients to know about how assets and their living trust work together?
A. Once you have a living trust, you will continue to be free to buy and sell assets, open new accounts, close accounts… just as you always have. The only change is when opening any new accounts or obtaining new assets going forward, you will need to refer to the Funding Instruction Letter on Hammond Law Group letterhead as to how that particular account should either be titled or how the beneficiaries should be designated, depending on the account type. We will walk you through this letter at your Final Signing and Funding appointment.
Q. What is the biggest confusion you see when helping clients fund their living trust?
A. Clients often think that assets and trust documents are one and the same. But in reality, the trust documents we draft are just a plan. It’s a plan that covers how you want your assets managed who you want your assets to go to. The assets are updated through ownership, beneficiaries, or both to ALIGN with that plan.
Q. What is the biggest misconception surrounding funding a living trust with assets?
A. The biggest misconception I see during the funding process is clients thinking that if they get new assets, we will have to redraft trust documents to include those assets. The reality is that trust documents and assets are completely separate. They just work together. The trust documents do not reference any specific accounts or property you own, they just outline how you want to distribute any assets you own at the time of your passing.
Q. What does Hammond Law Group handle when funding my living trust and what do I have to take care of?
A. The client has to handle anything employer provided, such as pensions or retirement accounts. (Employers won’t talk to anyone but the employee on the account of an employer provided plan.) Clients also need to handle their own bank accounts. With most everything else, Hammond Law Group can usually find the appropriate forms online or call the companies and get the forms from them as a free benefit of the Legacy Protection Plan. When I am able to get the form for a particular account or asset, I can then prepare the form for the Final Signing appointment, during which clients sign their trust documents and fund the trust.
We draft deeds for real property in state and can coordinate deeds for out-of-state real property and handle those completely. We also draft Assignment documents for anything that just needs its interest assigned to the trust (such as a business interest). I can also typically pre-fill all the forms for stocks and have them ready for the client. Stock forms usually require a medallion signature guarantee to make them effective, which is only available at banking or brokerage institutions.
Q. What is a medallion signature guarantee?
A. The medallion signature guarantee is a special guarantee for signatures authorizing the transfer of securities. It’s a binding warranty issued by the authorized guarantor institution that the signature is genuine, the signer is the appropriate endorser, and the signer has legal capacity to sign. This is not the same or equal to a signature from a notary public. If a medallion signature guarantee is required, you will need to take the form we have pre-filled for you to a bank or your brokerage firm to obtain the guarantee stamp. Many institutions do not provide this service. There may be a small fee associated with obtaining the medallion stamp.
Q. How long of a process is it to get all assets into the living trust after initial trust setup?
A. If we are able to prepare all forms before your Final Signing appointment, we will mail them out within the week after signing. Average processing time for all institutions is around 3 – 6 weeks. Clients can typically expect confirmation letters to be mailed to them from the institutions involved.
Q. What information does Hammond Law Group need from me to help me get my living trust funded?
A. We provide clients with an Asset Checklist to fill out and bring with you to the Asset Review Meeting. The Asset Checklist asks for basic account information such as owner name and account number. We do not need account statements to handle this process.
Q. What are some quirky rules you run into when helping clients fund their living trust?
A. Each institution has its own rules. I keep notes on anything I encounter that can help make the process smoother for clients. Sometimes institutions that take my call won’t even send me a blank form to pre-fill, or send a form to the client upon my request. They require that the client themselves call and get a blank form. In those instances, the client just needs to request the form and once it’s received I can help you fill it out.
Q. How are life insurance policies put into a living trust?
A. Life Insurance policies need to change ownership from the individual to the trust so that successor trustees are able to continue paying on the policy or make changes to the policy in case of incapacitation of the owner. Beneficiary will also need to be changed to the name of the trust.
Q. How are bank accounts put into the trust?
A. Bank accounts are similar to life insurance policies in that they will need to have ownership changed from the individual to the trust. This is necessary in case of incapacity; you want your successor to be able to continue paying your bills on your behalf. If you do not put the bank account in the trust, you would potentially be relying on a Financial Power of Attorney (POA) to allow your chosen agent to manage that account in case of incapacity. In case of incapacitation, a POA may allow your loved ones to access the account for a limited time. However, POAs are not indefinite and each individual financial institution has their own set of rules as to how long they accept POA documents before requiring an updated signature. Not putting the account in the trust runs the risk that a POA would expire, thus exposing loved ones to the risk of not being able to access funds. Additionally, in the case of death, POA documents no longer apply. So if beneficiary or payable on death information is not updated, loved ones are exposed to issues accessing the account. We recommend putting all bank accounts into the trust.
Q. What do I need to know about retirement accounts related to my living trust?
A. You do not want to change the ownership of a retirement account such as an IRA; that is considered a taxable event as if the IRA was liquidated. With retirement accounts such as IRA’s, we do not recommend putting them into the trust. We just align beneficiaries with the rest of your estate plan. We will walk you through this as part of the process.
Q. What are the tax implications of changing ownership of assets from the client’s personal name to the name of the living trust?
A. There are no tax implications for changing ownership of assets other than retirement accounts from the name of a person to the name of a trust as long as it is being changed within the current institution. However if a client were to change from one institution to another, for instance moving from Fidelity to Vanguard, potential tax implications should be reviewed first. This is a general rule of thumb and clients should always consult with a tax advisor about their own personal situation before assuming an event is non-taxable.
Q. How do vehicles fit into the living trust?
In Colorado, our DMV has a transfer on death form. (Not every state has these.) This form is titled State of Colorado Transfer of Title Upon Death Designated Beneficiary Form. Because of the way this form works, vehicles do not go in the trust until the death of the owner. We put this completed form in your binder that will be signed and notarized at your Final Signing appointment. The form allows your successor trustee to transfer the ownership of the vehicle to the trust upon the owner’s death. It’s a document that will not be used except by the successor trustee at the time of the owner’s death.
When the vehicle is put in the name of the trust after the trustor passes, then the successor trustee managing the trust can manage the vehicle. It allows them to sell the vehicle or retitle to themselves or another beneficiary– whatever they need to do to manage that vehicle. If the trustee does not put it into the trust using this form, and instead takes a death certificate to the DMV, it may be a headache to establish that they are supposed to be the ones to manage or inherit the vehicle. The form, as a transfer on death, shows the trustor’s intention to say “yes we intended the vehicle to go into the trust so our successor has full authority over it.”
Q. Is it a stressful process to fund my living trust?
We try to take all the stress out of it by helping with as much paperwork as we able. It’s just a paperwork process and we’ll walk you through it from start to finish.
Not funding a living trust is just one mistake clients make with their trusts
Still have questions about how assets fit into your trust? Give us a call, we’re always happy to help; we never charge for phone calls for clients. If you are an established client and it’s been some time since you created your trust, we highly recommend that you attend our 8 Deadly Mistakes workshop. This workshop discusses issues that may arise with your trust if it’s been awhile since you set it up. Not including new assets into your trust is one of these deadly mistakes, but there are others that can hijack your estate plan. See when the next workshop is happening here.