By Gullotta Law Group on February 27th, 2023 in
What is the Process for Setting Up a Trust?
The process of creating and funding a trust can feel overwhelming, however, when you have a highly-skilled, knowledgeable California trust attorney by your side, the process is not nearly as complex or confusing. California probate is notoriously lengthy and costly. This means that your loved ones must wait a significant amount of time to inherit the assets you leave to them. A trust can help limit the exposure to probate—or potentially, skip the process entirely.
Even better, many types of trusts allow you to use and control your own assets during your lifetime while naming a successor trustee who will take over in the event of your incapacitation or death. In fact, those who use a trust as an integral part of their overall estate plan will find they gain added control and flexibility, while removing property transferred to the trust from the probate process. The living trust (the most common type of trust, whether revocable or irrevocable) is a fiduciary agreement in the form of a legal document.
You, as the trustor or grantor, are authorizing the trust and the named trustee (who can be you until your death or incapacitation) to own and manage your assets and properties. A trust is very different from a will, as it becomes the legal “owner” of property and assets transferred into the trust. While you will definitely want to have an experienced estate planning attorney assisting you when creating and funding a trust in California, the following steps will give you a good idea of how the process works.
- Take a comprehensive inventory of all your assets. When making your list, include assets like any real property as well as all your financial accounts. This initial list allows you and your estate planning attorney to accurately determine the overall size of your estate as well as what type of trust to use and the best way to structure the trust.
- Once your inventory list is complete, discuss which assets you want to transfer into your trust with your attorney. Some of the assets you will likely choose to transfer into your trust include your home, any other real estate, your personal property like vehicles, boats, artwork, jewelry, furniture, etc., and your financial assets, including bank accounts, and stocks and bonds. You will likely not want to transfer assets that can easily be sold, and/or those that quickly depreciate in value (which could include vehicles, depending on the specific vehicle). Assets that would pass outside the probate process such as life insurance policies or retirement accounts that already have named beneficiaries do not need to be transferred into your new trust.
- Determine who you want to be the trustee for the trust as well as the successor trustee. Your trustee will act as the custodian of the trust, administering finances, distributing assets as per trust instructions, and managing all trust assets. You can select yourself as the trustee during your lifetime, which allows you to easily manage the trust assets. Since most people do not want to risk losing control of their assets, they name themselves as the trustee, then choose a trusted individual (family member, close friend, estate planning attorney) as their successor trustee. As long as you are not incapacitated, you will manage your trust in the same way you currently manage your assets.
- You will choose your beneficiaries for the trust—those who will inherit your assets following your death. Once you pass away, the trustee or successor trustee will distribute these assets according to your wishes. When you have a trust, you can control the timing as well as the nature in which the distribution of your assets occurs. In other words, you can add “conditions” for your heirs to inherit your assets. This could be helpful in many situations. One example is when you have an adult child whose spouse is likely to quickly spend the assets or when the spouse’s creditors are a threat to the inheritance. A will does not allow you to place conditions on inheritances in the same way a trust does.
- You will draw up your Declaration of Trust. The state of California requires this one-page document that will have your notarized signature, stating that your intention is that your property is titled in the name of the trust—even absent any formal document like a Grant Deed or a Trust Transfer Deed. The Declaration of Trust establishes the details of the trust, outlining all the essential “parts” of the trust so it can be legally recognized. Having your signature witnessed by a notary public cuts down on the risk of having the validity of the trust questioned.
- All chosen assets and property will be transferred into the trust. You must retitle your property so that the trust owns the property and assets. When you are transferring assets, you will need your trust and identification documents.
How is a Trust Funded in California?
How you will fund your trust with individual assets depends on the specific asset. Funding a trust can feel very complicated, but with the help of your estate planning attorney, the process can go smoothly and quickly, without incident.
- Funding with bank accounts/financial accounts—Transferring money market accounts, savings accounts and CDs is fairly simple, although not all financial institutions will have the same policy. Normally, you will simply provide the banking institution with a copy of the Certificate of Trust. You may be required to open a new trust account which will replace your existing account. You also have the option of naming the trust as the beneficiary of your accounts, rather than transferring ownership of the accounts to your trust outright. You only need to open one trust account—and you may or may not choose to transfer all your accounts to the trust account. You may have a trust account for some of your financial accounts, while for others you might choose to name the trust as beneficiary of the trust. You will also place your safe deposit box in the name of the trust so your successor trustee will not encounter problems when attempting to gain access to the safe deposit box following your death.
- Real estate includes real property, most of which should be held in the name of the trust in order to avoid probate in the counties where the properties are located. If you own real estate in other states, those properties will be transferred into your trust as well. Transferring real property into the trust requires a new deed that properly reflects the name of the trust. This deed must be executed, notarized, and recorded with the county recorder where the property is located. While this is not particularly difficult, care should be taken to ensure the legal description in the existing deed exactly matches the legal description on the new trust deed. For any real estate that has not been properly transferred into your trust, the property will likely have to go through the California probate process. When there is existing debt on real estate being placed into the trust, the financial institution that holds the mortgage or deed of trust must be contacted and consent obtained prior to placing the property into the name of the trust. If you fail to obtain the lender’s consent prior to transferring property, the lender could potentially accelerate the loan based on a “due-on-sale” clause contained in the note or deed of trust. Once the property is re-titled in the name of the trust, your insurer must be notified of the transfer to determine whether any changes in the policy are required. When new property is acquired, you will need to instruct the escrow officer who is handling the transaction that you want to have the title recorded in the name of the trust.
- Businesses—If you have a partnership, then it may be public or non-public. If the partnership is public, then it will require a copy of the trust agreement and a copy of an instructional letter with the request that the ownership name is changed to the name of the trust. The transfer to the trust of non-public partnership interests is generally accomplished through an assignment that may or may not require the approval of the general partners—or all partners. For a limited liability company, the trust can be a member of the LLC. In the same way as for a partnership, any new LLC interests acquired will be instructed that the title will be held in the name of the trust. Other business interests or a sole proprietorship can be transferred by the trust through an Assignment of Business Interest that will assign all property and assets owned by the business to the trust.
- Insurance and annuities, including life insurance, may or may not need to be placed in the trust, since the proceeds transfer contractually to the named beneficiary—therefore they have already avoided probate. If, however, you wish the proceeds to be distributed in the same manner as the other trust assets, then the trust will be designated as the beneficiary.
- Retirement Accounts are like life insurance in that they may or may not need to be placed in the trust if there is a named beneficiary for the account. Like life insurance, if you wish to have the retirement account paid to your trust instead of a named beneficiary, it can be titled into the trust.
- Stocks and bonds require that the stocks and bonds are transferred into the name of the trust. The procedure is different for stock that is publicly traded on an exchange than for privately held stock. For publicly held stock, you will have to work through a stockbroker or through the institution from which the assets were purchased.
Motor vehicles, RVs, and boats can be placed in a trust via an Assignment of Personal Property, with no DMV transfer required. A mobile home can be placed into the trust by contacting the same state authority that issued you the registration for the home. Personal property like furniture, household effects, artwork, jewelry, etc. can be transferred to the trust via the Assignment of Personal Property.
Once the trust is properly funded, the trustee (you, or a named trustee) will have control of these assets after ownership has been transferred. Properly funding a trust ensures the assets can be controlled by you as trustee, or by another named trustee, going to the correct beneficiary following your death without having to go through probate.
After discussing whether a trust will be beneficial for you and your estate, your estate planning attorney can assist you with the process of setting up a trust and funding the trust. Once the trust is funded, if you should become incapacitated, then your named successor trustee can step in and handle your financial and/or medical affairs on your behalf.
How the Gullotta Law Group Can Help You Set Up and Fund a Trust
While funding a trust can seem overwhelming, it can actually be a simple process when you are working with an experienced estate planning attorney from the Gullotta Law Group. Attorney Eric Gullotta will help you choose, create, fund, and execute a trust, or can help you with any part of estate planning. When you work with Gullotta Law Group, you simply need to tell attorney Eric Gullotta what your goals are for your trust or overall estate plan, and the appropriate documents will be drafted to ensure your family and the court understand your last wishes for your assets and your loved ones. Contact the Gullotta Law Group today.