If you have a trust and live in California, you have probably run across the phrase, “funding the trust.” Simply put, funding the trust is nothing more than placing assets into your trust (versus keeping them in your estate). The term “funding” in the phrase really means the process of changing title to your property so that the property now reflects the existence of the trust and the identities of the trustees of the trust. It is important to fund your trust so that such property is considered to be in the trust, thereby circumventing probate, and it also allows successor trustees to gain control of the property upon your incapacity or death.
A trust can be funded with both real and personal property. In the case of a revocable trust, the most common type of property that is funded into the trust would the family home. This is done through the use of recording a grant deed or other type of deed reflecting the change in ownership from you individually to yourself, or a third party, as trustee of the trust. Generally speaking, all real property is funded into a trust through the use of such deeds. Bank accounts, investment accounts, and other non-tax deferred accounts will have ownership or title changed with the respective financial institution to show the new owner is now the trust. Most financial institutions will require a document called a Trust Certification in order to make such changes to the accounts. Special types of property may be funded into the trust through the use of specific assignments.
So do you have to fund your trust?
The answer to this question is no, funding the trust is not required. However, it is HIGHLY advised. Before we go into the reasons why it is advisable, in California settlors of a trust can create a trust by declaring that they hold particular property as trustees or conveying that property to a third party as a trustee. Under a famous California case, Estate of Heggstad, as long as the trust documents contains a list of trusts property and language to satisfy the requirement for a declaration or conveyance, the listed property becomes trust property as soon as the document is executed, and no further action, such as funding the trust, is necessary. This is true with revocable trusts and even irrevocable trusts in some circumstances.
But back to the reasons why funding the trust is HIGHLY advisable. To start with, most California revocable trusts must be funded to allow the trustee to manage the trust property. If the trust is not funded, it will likely be necessary for the trustee to seek a Court decree or order declaring that the trust property in fact belongs to the trust. Seeking this type of Court decree or order is done through a process commonly called a Heggstad Petition (named after the case discussed above) and is very time consuming and costly. The cost of simply funding your trust is very inexpensive when compared to the cost of a Heggstad Petition which can cost a few to several thousands of dollars. Funding a trust just takes a few simple steps and a document or two. A Heggstad Petition is complicated.
But be careful! Certain types of property funded into a trust will result in unintended tax consequences. Funding a trust is not something to be taken likely so before you fund your trust in California, make sure to consult a California attorney that focuses on estate planning before any steps are taken to fund the trust.
Authored by Greg Chilina and Co-Authored by Karen Chilina
Chilina Law Firm, a Professional Corporation, is a full-service estate planning, probate, trust administration, business law, and real property law firm that provides a wide-range of advising, transactional, and litigation services to its clients from its office located in Atascadero, California. The firm’s attorneys represent individuals and business entities in an assortment of transactional and litigation matters involving estate planning (including trusts, wills, powers of attorney, and medical directives), probate, trust administration, as well as general business law, contracts, corporate governance, land use, and real property. Chilina Law can be contacted by telephone at (805) 538-5038 or by email at info@chilinalaw.com or visit the Chilina Law Firm at www.chilinalaw.com. Chilina Law Firm is based in Atascadero, California and serves North San Luis Obispo County communities, including Santa Margarita, Atascadero, Templeton, Paso Robles, and San Miguel.
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