Funding/Titling of Assets into Trusts
Funding/Titling of Assets into Trusts
Funding & Retitling Assets into Trusts
Working in Clients’ Best Interests Since 1987
Did you know that we are among the fraction of law firms in the entire country that fund assets into clients’ trusts? Unfortunately, trust planning is often ineffective because people’s financial assets are not retitled into their trust documents. As such, we take pride in doing the “heavy lifting” for clients by incorporating all their assets into their trust. They don’t have to lift a finger in the stage of the process.
Funding and retitling assets into a trust are fundamental to the success of an estate plan. However, it is often overlooked and dismissed. Failing to transfer assets makes a trust virtually ineffective and subjects such assets to the probate process, generating substantial legal fees, Massachusetts estate taxes, loss of bloodline protection, and loss of asset protection. As a result, clients and their subsequence beneficiaries don’t enjoy all the benefits of an estate plan. This is why the Law Office of Frederick N. Pellegrini funds and retitles assets into trusts on our clients’ behalf for safe measure.
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Funding a Trust and How Does It Work?
Funding a trust involves the transfer of financial assets into a trust. For example, you can transfer bank accounts into a trust by providing written directions to the financial institution and a copy of the trust document to be delivered to the bank.
That being said, you can think of a trust as a bank account. A bank account doesn’t function without funds, and likewise, a trust can’t effectively operate without assets. As such, our attorney can help transfer investment accounts such as mutual funds, stocks, bonds, etc. into your trust by completing forms required by the financial institution. To confirm the transfer, we ask the financial institution to sign a written confirmation that the assets were, in fact, moved into the trust. Not only does this provide an extra security blanket for you but also serves as proof of the transfer. If you experience issues with your assets down the road, the written confirmation could come in handy.
Once all this work is done, the investment account is considered officially “owned” by your trust.
What Assets Can & Cannot be Transferred into a Trust?
A popular misconception is that ALL assets can be moved into a trust. That’s not true. As we discussed before, investment accounts such as mutual funds, stocks, and bonds can be transferred into a trust. In addition, annuities can be transferred into the trust, where spouses are generally named as initial beneficiaries and the trust as a contingent beneficiary.
However, qualified assets such as 401(k) and IRAs cannot be moved into a trust. For this reason, we name a spouse as the primary beneficiary and the trust as the contingent beneficiary, as with annuities. The objective of funding trusts is essentially to control assets for initial beneficiaries as well as the children and grandchildren who are named as subsequent beneficiaries. For example, if you have minor children, we want to ensure your life insurance is payable to the trust and a responsible successor trustee that can manage such assets for your children.
Why We Name Trusts as Contingent Beneficiaries
After reading the information above, you might be curious as to why we name trusts as contingent beneficiaries. We examine a US Supreme Court ruling below to give your clarity.
The United States Supreme Court determined that if 401(k)s and IRAs are transferred to non-spousal beneficiaries, they are subject to the creditors of the beneficiaries. In a Supreme Court case, a deceased woman left a $300,000 IRA directly to her daughter. At the time of her mother’s death, the daughter filed a bankruptcy petition. As a result, the United States Supreme Court decided to give the entire $300,000 to the creditors in the bankruptcy case. Why?
The reason for this decision was that owners of 401(k)s and IRAs receive protection to preserve their assets for retirement, but that same protection is not afforded to subsequent non-spousal beneficiaries.
However, if the mother had named her trust as the beneficiary, her daughter would’ve received the entire $300,000. This is because the asset would be protected by the trust document, where the trustee is authorized to transfer some or all of the income or principal of the trust to the beneficiary, leaving that asset fully protected for the beneficiary.
Therefore, our attorney typically names the trust as a contingent beneficiary for qualified assets.
Questions? We Have Answers.
As you can see, it is critical to get an attorney to fund your hard-earned assets into your trust. The Supreme Court ruling above is one of many examples of the worst-case scenarios you and your loved one could experience when assets aren’t transferred properly. To best avoid this nightmare, our Dedham attorney invites you to schedule a consultation to get started on this critical process.