How To Fund A Trust

Whether you are hoping to avoid probate, want to put specific conditions on a beneficiary’s inheritance, or have other reasons for it, creating a trust can be a vital part of your estate plan. There can be many benefits to having a trust, from tax implications to protection against creditors or lawsuits. However, simply creating the trust is not enough. You must also fund it. For many, the question is how to fund a trust. Do you put cash in it? If you put assets in the trust, which assets and what if you change your mind later? Whether you need assistance creating and funding a trust for the first time or have questions regarding changes you would like to make to an existing trust, the experienced Florida estate planning attorneys at Loughlin Law, P.A. may be prepared to handle any of your trust or estate planning needs. Call (561) 677-8384 to schedule a consultation where we can explore your estate planning options.

How Do You Open a Trust in Florida?

Opening a trust in Florida is not extremely complicated, although the law may make it sound intimidating. FL §736.0401 indicates that the methods of creating a trust include: the transfer of property to another person as trustee during the settlor’s (grantor) lifetime, by their will or other disposition at their death; a declaration by the owner that they are holding identifiable property as trustee; or exercising a power of appointment in favor of a trustee.

While the law may make it sound complicated and confusing, it is easier than it sounds, particularly with the assistance of a skilled attorney. In addition to deciding whether to open a revocable or irrevocable trust, there are several subcategories of trusts within the revocable or irrevocable designation, such as joint revocable trusts for married couples, that the individual must choose from. Then, there are several steps that must be taken to ensure that the trust is properly established and funded.

Revocable vs. Irrevocable Trusts

Revocable and irrevocable trusts are very similar, with the main difference being how much control the trust grantor has over the trust. Revocable trusts give the grantor great control over the trust. The grantor can change or revoke a revocable trust at any time, keeps control over the assets in the trust, and the trust can avoid probate. The assets in a revocable trust are still included in the grantor’s taxable estate.

Irrevocable trusts restrict the control the grantor has over the trust. Once established, an irrevocable trust cannot be revoked or changed. This applies to the assets placed in the trust as well as the beneficiaries named and the terms of the trust. The grantor relinquishes any control over the assets, which also typically removes them from the grantor’s taxable estate and reduces their tax liability. Irrevocable trusts also provide stronger asset protection against creditors and lawsuits.

Steps to Take to Create the Trust

The first step to creating a trust is creating a trust document that accomplishes the objectives the individual has for the trust. Next, they will select and name the beneficiaries who will receive the assets in the trust in accordance with the trust terms. Then, they will assign a trustee or trustees to over the trust and its accounts. They will also choose an alternative trustee to take over when the original trustee dies or is incapacitated. The trust grantor may be able to appoint themselves as trustee as well.

The trust grantor will then review the trust document to ensure that everything is correct. They will also ensure that the document specifically outlines the trustee’s powers over the funds and other assets held by the trust. If all of this information is included and correct, the grantor then provides a list of assets to fund the trust. An attorney may assist by offering guidance on how to place these assets in the trust, and for some assets, the attorney may handle paperwork and ensure that the asset is properly titled or otherwise documented as part of the trust. Finally, once the trust has been properly executed, the grantor will present the trust document, Certificate of Trust, or Memorandum of Trust, to the bank. They will present this document along with the tax identification number (TIN) and the funds they wish to deposit into the trust. The bank will create an account in the name of the trust.

Are There Differences In Creating and Funding Revocable vs. Irrevocable Trusts?

Creation and funding of revocable and irrevocable trusts are generally the same. The differences between the two types of trust come after the formation and funding. The main differences are asset control, tax implications, and beneficiaries and their rights.

However, those differences can be significant, and the unchangeable and irrevocable aspects of the irrevocable trust can be extremely risky for some individuals. Before opening any trust, individuals should carefully consider all their options and may want to review those options with an attorney before making a decision.

How Do You Fund a Trust?

Funding a trust involves transferring personal assets from the individual’s ownership to the trust’s ownership. This is essentially changing the title or ownership of the person’s own assets to reflect the trust as the new owner. However, not every asset is suited to being placed in a trust.

Providing a list of assets that the individual intends to place in the trust is not the same as funding the trust. In order to fund the trust, the listed assets must have their title or other ownership document changed to reflect that the trust now owns the asset. If it is an asset that does not have paperwork that reflects ownership, such as jewelry or other personal property, individuals can use a general transfer of ownership document or assignment of property interest to indicate that the assets have changed ownership from the individual to the trust.

How to Fund a Trust: What Goes In and What Stays Out?

While the general description of how to fund a trust is to place assets in it, the details are a bit more specific. There are some assets that are good choices to put in a trust and others that should typically not be put in a trust. While the list of what should and should not be placed in a trust can be beneficial, individuals should also consult with an attorney at Loughlin Law, P.A. and explore their specific needs and circumstances. Some assets that would usually be good choices for a trust may not be due to the individual’s unique needs and vice versa.

Assets You Should Probably Include

Most assets are generally able to be placed in a trust. Assets that individuals should most consider placing in their trust include:

• Real property, including real estate such as home and land
• Investments, including Certificates of Deposit (CDs), stocks, and mutual funds
• Bank or credit union accounts and safe deposit boxes
• Life insurance
• Notes payable (evidence of money owed to the individual)
• Intellectual property and business interests
• Gas or oil interests and foreign assets
• Personal untitled property such as jewelry, books, family heirlooms, etc.

Individuals can create a list of their assets that fit these categories and then review that list with their attorney. An attorney may be able to determine whether any of these types of assets should not be placed in the trust due to the individual’s specific needs or circumstances.

Assets You Should Probably Not Include

There are some assets that should typically not be placed in a trust. There are a variety of reasons why these assets should remain outside the trust, and an attorney may be able to provide more information on how including or not including these assets may benefit the individual.

Assets that should generally be excluded from a trust are:

• Motor vehicles: Motor vehicles can be expensive and complex to put in a trust. In addition to the fact that they are typically titled to an individual, many insurance companies will not insure a motor vehicle that is in a trust’s name or they may charge higher rates. Additionally, if the vehicle is in an accident, the other party may view it being in a trust’s name as a reason to file a lawsuit. If they do, all of the trust’s assets may be vulnerable.
• IRAs and other tax-deferred retirement accounts: The transfer of an individual retirement account (IRA) or other tax-deferred retirement account into a trust may trigger tax consequences as well as a loss of some benefits. Under the SECURE Act 2.0, beneficiaries may be required to pay unexpected taxes or to take distribution of the entire account within 10 years, which may conflict with trust terms. However, there are specific retirement account trusts that may allow an individual to put their retirement accounts in a trust without triggering unwelcome and unexpected consequences.
• Interests in professional corporations: In addition to being complex and potentially costly to transfer these interests into a trust, it also jeopardizes the corporation’s limited liability protections. Additionally, it can dilute the licensed professional’s control over decision-making and operations and may also conflict with professional licensing and regulatory requirements.
• Incentive stock options and Section 1244 stock: Section 1244 stock must be continuously owned by the same individual or partnership from the original date of issue until it is either sold or deemed worthless. Transferring it will disqualify it from Section 1244 treatment. Similar rules may apply to incentive stock options as well.

What If an Asset Is Inadvertently Left Out of a Trust?

Most people have at least one or two assets they may have forgotten about, such as an expensive piece of jewelry or a classic book. Others may purchase a new asset and unfortunately die before they can take the required actions to put that new asset in the trust. This does not have to mean that these assets cannot be placed in the trust.

When the individual creates the trust, they can also ask their attorney about creating a “pour-over will.” This is similar to a traditional will, but instead of distributing assets to beneficiaries, a pour-over will instruct the probate court to transfer any assets that were not already transferred into the trust or given to designated beneficiaries to the trust when probate is complete. Once probate is done, the court will transfer those leftover assets into the trust, where they will be subject to the trust’s terms.

How a Florida Estate Planning Attorney Can Assist With Your Trust

There are many advantages to having a trust. Creating the trust without funding it will not trigger those advantages, however. You need to know how to fund a trust, including which assets to put in it and which ones to leave out. An attorney may be able to assist by helping you determine which kind of trust you need, which assets to use to fund it, and creating the trust’s terms. An experienced Florida estate planning attorney at Loughlin Law, P.A. may be able to assist you in creating, funding, or modifying your trust. Call (561) 677-8384 to learn more about your trust funding options during a consultation.