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Tuesday, April 26, 2016

Trust Funding Q & A

What does it mean to fund a trust, and why is it so important?   Once you create a revocable living trust there is one last step that should not be overlooked: funding your trust.  Trust funding  is the process of retitling certain assets to name your trust as the new owner or, in some cases,  naming  the trust as the primary or contingent beneficiary of your assets. Unfortunately, many people who invest time and money into creating a revocable living  trust  fail to do this. With some important exceptions, all of your real property, personal property and business interests should be funded to your trust.   If your trust is not properly funded, many assets may still have to go through a probate proceeding after your death before eventually  reaching your trust and its beneficiaries.

We own real property in more than one state.  Can we put all our property into one revocable living trust?  Yes, and this is one of the advantages of a revocable living trust.  Without a funded trust, not only will the property you own in the state where you are legally domiciled be subject to probate, but the real property you own in another state will go through an ancillary probate in accordance with that state’s laws.  By funding both properties into your single living trust, you eliminate the need for both probate proceedings.

How can I obtain help with funding my living trust?  Your first resource is  the attorney who drafts your estate planning documents.  If necessary, your attorney can create a deed for any real estate placed into your trust, and assist in transferring non-real estate assets.   Your CPA, CFP, or financial advisor can also help with completing forms to name your trust as a new owner or beneficiary.  Considering the importance of funding your trust, it is wise to seek professional advice.

Our trust is long and contains very personal information.  Do we really have to provide a copy, just to fund it?  A financial institution needs to know who has the authority to act on behalf of your trust as this information will insulate them from potential legal liabilities.  Your attorney should prepare for you a Certification of Trust which shows the legal name of the trust, a list of the trustees and successor trustees, and the trustee powers.  By Florida statute, any company doing business in the state must accept the Certification of Trust in lieu of the entire trust. 

Do we have to file a different income tax return for our trust?  Assuming your trust is revocable, that is, you maintain control over it and can make changes to it until your death or legal incapacity, you will not have to file a trust income tax return while you are living.  You can continue to file your single, joint, or separate personal tax returns using your Social Security number as usual.  Upon your death, a separate tax return may be required for the trust.  

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