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The following articles were written by former Probate Judge Merri Rudd.

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Step 2: Funding the Trust

9:40 AM
Merri Rudd

Editor's note: This column may not be quoted or reproduced in whole or part without express written permission of the author.

I have discussed Step 1, creating the trust, and Step 3, distributing trust assets following a settlor's death. Now I will address Step 2, funding the trust. Keep in mind that these columns only give readers general information about trust law. Specific questions should be directed to qualified attorneys or accountants.

After the settlor signs the trust document, the settlor must fund the trust, which involves transferring assets into the trust. Various companies, such as stock brokerages and banks, have specific requirements for changing the title. Some will keep a copy of the trust; others will require additional forms.

Assets that may need to be transferred into the trust include life insurance policies, oil and gas royalty interests, limited partnership interests, bank accounts, real estate, stocks and bonds. Documents might include deeds, assignments and transfer statements for corporate stocks and bonds, bills of sale and assignments of life insurance, leases, mortgages, real estate contracts, and promissory notes.

For married couples who create a living trust and plan to serve as trustees of the trust, the new title on their accounts will read "Husband's Name and Wife's Name as Trustees of the Husband's Name and Wife's Name Revocable Trust dated _________." For single individuals who create a living trust, the new title on the accounts will read "Individual's Name as Trustee of the Individual's Name Revocable Trust dated _________."

For mobile homes and other motor vehicles, the title must be changed with the Motor Vehicle Division (MVD). Call the MVD in your area and ask how to proceed. People can choose not to transfer motor vehicles into the trust.

Transferring real estate into the trust requires new deeds to be prepared. Deeds for individuals are drawn up to transfer the property from the individual to "the Individual's Name as trustee of the Individual's Name Revocable Trust dated _________ and his or her successors in office" or similar language for married couples. All deeds must be recorded into the public record in the county where the property is located. Recording the new deed is important, so that a public record of the transfer of the real estate into the trust exists.

These requirements also apply to out-of-state real property. Seeking the assistance of a title company or attorney in the state where the property is located is advisable to make sure the new deeds comply with state law. Improperly drafted deeds may cloud the title to the real property and require a court procedure to straighten out the title.

After the assets are transferred into the trust, list the assets on a schedule that is attached to the trust document. This schedule is often called "Schedule A." Schedule A should be updated so that it reflects a current and accurate list of assets that are part of the trust. Schedule A may be the only place that all trust assets are listed, and having Schedule A correct (and updated if you add assets later) helps your successor trustee know what assets are in the trust.

Some people think that listing the assets on Schedule A automatically puts them into the trust. This is not true! Merely listing the assets on Schedule A is not sufficient. You must transfer the assets into the trust by changing the title to the assets as discussed above. Designate whether each item you list on Schedule A is "community property" or the "separate property of (name)."

Transferring assets into a trust does not happen overnight. Sometimes completing all the transfers takes months. Some people who create trusts want their attorneys to handle all of the transfers. Others may wish to handle the transfers themselves. Most attorneys will insist on at least preparing deeds to real property to make sure the title is changed correctly.

Assets titled in the sole name of the settlor and not transferred into the trust before the settlor's death must pass through a court probate proceeding, which many people wish to avoid. Once you expend the time and money to create a trust, be sure to fund it properly to avoid probate.

© 2005, Merri Rudd & Albuquerque Journal, All Rights Reserved 

Appeared March 10, 2005, Albuquerque Journal, Business Outlook 
Reprinted with permission

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