How To Properly Fund A Trust

Brandon R. Amaral, CFP®, EA
Brandon R. Amaral, CFP®, EA

Founder & Financial Planner, Amaral Financial Planning

If you own a home or have minor children, it’s usually a good idea to create a Living Trust. While finding the motivation and time to meet with an attorney is important, it’s only one step in the Estate Planning process.

From updating beneficiaries, to retitling accounts, to filing new deeds with the County Recorder’s Office, it’s crucial that you take the final steps to fund your Trust. If not, your Living Trust is nothing more than a paperweight that will be read in probate court.

Sign up for the AFP newsletter to receive weekly updates and blog posts!

Here is an overview of funding a Trust:

What does it mean to fund a Trust?

After your Trust document is drafted by an attorney, it needs to be signed and notarized in order to be valid. But until you move assets into the Trust, it will remain unfunded.

Funding a Trust refers to:

  • Retitling bank and investment accounts into the Trust
  • Adding the Trust as a beneficiary to retirement accounts and insurance policies
  • Transferring ownership of your home and properties into the Trust

Bank and investment accounts

When it comes to bank and investment accounts, they are typically set up as an individual or joint accounts. Without diving too deep into estate laws, retitling your accounts into the name of the Trust can be beneficial for a few reasons:

  • You ensure that the right people will inherit your assets
  • Your beneficiaries will receive your assets in a timely manner
  • You avoid potential probate court and fees

While some banks and investment companies will allow you to change your current account into a Trust account, most will require you to open a new Trust account and submit a transfer request.

Retirement accounts and life insurance

For the majority of people, their retirement accounts will be the largest asset they own (besides their home). For couples with young children, it’s generally recommended to list your spouse as the primary beneficiary and the Trust as the contingent beneficiary.

When it comes to life insurance, you might think that you should name your spouse and children as beneficiaries. However, if your child is a minor, they will not be allowed to access the money directly. Instead, the matter will need to be settled in probate court and an adult will be delegated to manage the money until the minor is old enough. Naming the Trust as a beneficiary will ensure that your children are taken care of by a designated representative of your choosing.

Homes and rental properties

In California, the Probate Code mandates that estates of over $184,500 have to be probated. Probate is a long and expensive process, which typically lasts at least 9 months and calculates the following fees:

Value of EstateFees
First $100,0004%
Next $100,0003%
Next $800,0002%
Next $9 Million1%
Next $15 Million0.5%

Since the typical home in California costs about $780,000 (or closer to $1.2 Million in the Bay Area), the mandatory Probate fees add up very quickly. That is over $20,000 in unnecessary fees!

To bypass Probate and ensure that your properties are transferred to your beneficiaries in a timely matter, retitling your home into the Trust will ensure this. To add your home into your Trust, you will need to file a Quitclaim deed with your local County Recorder’s Office. The cost to record the transfer can range from $20 – $100 depending on your county.

Ensuring that you properly fund your Trust is essential to avoiding Probate and taking care of your loved ones. If you would like to work with a financial planner to walk you through your options, I would love to help you!

To learn more about becoming a client, schedule a complimentary meeting now!

Disclaimer: This blog is for informational purposes only, and should not be considered advice or recommendations. All opinions expressed herein are solely those of Amaral Financial Planning, LLC, unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made to another parties’ informational accuracy or completeness. You should consult your financial advisor, tax professional or legal counsel prior to implementation.