The Trust With Nothing In It

Imagine you want to protect an irreplaceable family heirloom. You spend countless hours researching and purchasing the best indestructible safe that money can buy. It is fireproof, waterproof, and was made with drill-resistant hard plates and high-grade steel. You feel confident this will fit your needs. However, after purchasing the safe, you keep the precious family heirloom on your kitchen counter.

While purchasing a safe puts you ahead of most in the “prepared” category, unless you set the lock combination, put everything you want protected inside, and lock the safe, it will do you very little good. Trusts are functionally the same.

Without any assets in it, a trust is a very expensive stack of paper. In contrast, a well-drafted and funded trust can do incredible things like sidestep the state’s intestate succession laws, avoid probate, minimize contention among beneficiaries, keep assets in the family, minimize legal fees, protect beneficiaries’ inheritance, etc.

So how do you know if your trust owns anything?

There are two main ways to transfer ownership of assets into your trust:

• (1)   Transfer on Death Designations
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• Transfer on death (TOD) or pay on death (POD) designations are one way to transfer assets into your trust. This method preserves the current ownership, function, and operation of assets, only changing who is legally entitled to them upon the asset owner’s death. Examples include:
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  • (a)  Trust beneficiary designations for bank accounts. This allows the account to remain the same (no change to account numbers, automatic payments, direct deposits, or Venmo) while allowing your successor trustee(s) to access the bank accounts after you die.
  • (b)  Trust beneficiary designations for retirement accounts. While listing individuals is at times preferable or required by law, listing a trust as a TOD beneficiary may allow for additional succession planning or inheritance protection.

• (2)   Retitling Assets
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• Retitling assets is another way to transfer assets into your trust. This method occurs during the asset owner’s life and often requires the involvement of external institutions or parties to properly effectuate the transfer of ownership. In many states (and for many types of assets), this method is the best (or only) way to avoid probate (i.e., a court-supervised process used to settle a deceased person’s estate). Examples include:
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  • (a)  Retitling real property into a trust by filing a deed with the County Recorder’s Office to transfer title.
  • (b) Retitling entity or private equity ownership into a trust by updating company records or investment paperwork.
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  Retitling assets during life is essential to achieving various estate planning goals, such as avoiding probate, asset protection, and tax mitigation.

At McCullough Law, we regularly and routinely help our clients with the “strategic funding” of their trust(s), or in other words, helping ensure the correct transfer on death designations are made and/or preparing legal documents to aid in the retitling of assets. So, if you see an individual’s name (as opposed to a trust name) on a statement, deed, title, or other record of ownership, raise a red flag and contact McCullough Law.