How To Fund Your Trust In Arizona - Brown & Hobkirk

7 Jan 2021

By Robert Hobkirk

In Estate Planning

A trust is a legal document that allows a third party, known as a trustee, to manage your remaining assets after you die and distribute those assets to your beneficiaries. A trust can go into effect while the trustor is still alive and can be used to manage assets without being subject to court regulation or supervision.

There are two main types of trusts:

  • Revocable– also called a “living” trust. The terms of this trust can be changed at any time.
  • Irrevocable– the terms of this trust are permanent and cannot be changed. Many revocable trusts are written so that they become irrevocable upon the death of the trustor.

Does a Trust Need To Be Notarized?

Yes, a properly executed trust must be signed and notarized.

Funding Your Trust

One of the most important, but sometimes overlooked steps when creating a trust, is to fund your trust by transferring ownership of your assets into the trust entity. The steps for transferring ownership will look different depending on what type of account you are transferring, but essentially, your goal is to change your account ownership from being owned by you personally to being owned by the trust.

If you don’t properly fund your trust, it may not protect or distribute your assets to the intended beneficiaries. Also, depending on the situation, certain estate tax benefits are only obtained if your trust is properly funded. Funding your trust requires a great deal of paperwork, and it would be beneficial to hire an attorney that can help guide you through the process.

In order to fund your trust, you may need to transfer ownership on the following accounts:

  • Financial Institutions– bank, brokerage, or investment account ownership would need to be transferred to the trust. For example, if you have a checking account, you would change the ownership of that account to your trust. You would do this by contacting the financial institution and filling out any necessary paperwork. Once the paperwork is processed, you will notice that the name on your checking account may now appear as your named trust:
    • Your name: Bill Smith
    • Your trusts name: The Bill Smith Family Trust
  • Real Estate/Real Property– real property requires the recording of a deed to the trust. If you have a mortgage, you may need to get the approval of your lender and notify your property insurance company.
  • Life Insurance– can be easily changed to the trust by updating your beneficiary designation form.
  • Business Partnerships, LLC’s, Corporations– transferring ownership depends on the type of business entity. For example, ownership in a corporation can be completed by assigning stock interests to the trust and modifying records held at the Arizona Corporation Commission’s office.
  • Retirement Accounts– the ownership of IRA’s, 401K, Stock Options or other Qualified Employee Benefits may not be changed, but the benefits from these assets can be made payable to your trust by naming the trust as the primary beneficiary. However, if these benefits are named to the trust, your beneficiaries may not be able to take advantage of certain tax deferral provisions. You will need to work closely with a skilled attorney when deciding whether you want to designate the trust as the beneficiary on these types of accounts. Your attorney will look at the type of asset, its value relative to your entire estate, and the terms of your trust when advising you on the best course of action.

Benefits Of A Funded Trust

There are numerous advantages of a well-prepared trust, including:

  • Avoiding probate, which is the process of validating a will in court. With a trust, you can transfer property and assets directly to beneficiaries through your trustee without the need for probate.
  • Privacy. Trusts can be administered privately.
  • Protecting family members by transferring specific properties or funds directly to vulnerable individuals, such as minors or incapacitated adults. If your funds are in a trust, they are safe from creditors and government interference.
  • Tax and cost reduction. Estate assets transferred through a trust may result in fewer federal taxes and cost less to administer.

How Do You Access Money In a Trust?

How Do You Access Money In a Trust?

Accessing money from your trust will depend on how the trust was written and what types of accounts were transferred into the trust.

For example, if you are the trustee and you want to withdraw funds from a checking account that has been transferred to the trust, you would simply follow the same steps that you would prior to funding your trust. The main difference being you would now act in the capacity of the trustee, instead of as an individual.

If you are a beneficiary under a trust, then the terms of the trust would dictate how distributions will be made to you. It may be an outright distribution, which means that you would simply receive your entire share once the trustee has administered the trust. However, if your share is to be held in trust for a period of time, then you would need to request a distribution from the trustee. The trustee would need to ensure that the purpose of the distribution is allowed under the trust provisions (distributions are typically permitted for things like health, education, maintenance, and support).

Is a Trust Fund Public Record?

No, one of the many benefits of a properly funded trust is that it can be administered privately and does not need to be a matter of public record. Who inherits your estate, what they receive, and when they receive it, can all remain private.

Contact Us

At Brown & Hobkirk, PLLC we take the time to customize each estate plan to the specific needs of each client. We understand that no two families are alike, so when you hire us, you can rest assured that a skilled and attentive legal advocate will help you effectively plan your estate for your family.

If you need assistance with funding your trust or starting your estate plan, call our legal team today. You can also contact us online.

Robert Hobkirk

Robert Hobkirk is a partner at the law office of Brown & Hobkirk, PLLC. He represents clients in legal matters involving trusts and estates, wills, probate law, and estate litigation, among other areas.
Read More