Funding a Living Trust

Once a trustmaker/settlor has established a living trust, the settlor's assets must be assigned to the trustee of the trust if the settlor's intent is to avoid probate.  If a settlor (or anyone) dies with assets in his name – or unassigned to his trust – he has become a "decedent property owner".  And, the only way property can be conveyed from a decedent to living persons (heirs) is through the retitling of that decedent's property to his executor – under the auspices of a probate court – who in turn, and in time, transfers such property to the decedent's heirs.

Record of Assignment.  There are various methods for funding a trust such as (i) retitling equity accounts, (ii) transferring real estate through realty deeds, and (iii) signing bills of transfer and/or asset ledger schedules w/statements of conveyance.  In all events, the goal in terms of funding a trust is for the settlor to create a record of "constructive receipts" where it has been demonstrated that the settlor has transferred and assigned his property (assets) to the original trustee of his trust.  That record can then be relied upon by the appointed successor trustee of his trust, who is to serve upon the settlor's decease, to constructively receive the (re)assignment of the property so that the trust corpus can be administered and distributed by the successor trustee according the terms of the trust.

Trusts are Agreements.  A point to keep in mind is that the assigning/retitling of property to the trustee is in theory assigning/retitling of property to the trust.  However, in fact, a trust is not an entity (as is a corporation, for example) but is only a declared agreement or contract between the creator/settlor and the trustee.  Therefore, a trust does cannot "own" property as such; it is simply an expressed statement of agreement appointing a trustee to hold title to all assets transferred (to him/her/it) by the settlor for the enjoyment of the beneficiaries of the trust.

Office of Trustee.  Another point of reference is the fact that transferring assets to a trustee is effectively assigning property to the office of the trustee.  We know that if an equity account or real property was retitled into the name of the original trustee, the property does not have to be probated even though that trustee may have resigned, become incapacitated, died, or ceased to exist.  The reason is because the property was actually assigned, by operation of law, to the office of the trustee, which was created by virtue of a statutorily recognized, properly drafted instrument of trust.  The trust must be clear that when the person/entity appointed as trustee vacates the office of trustee (through incapacitation or death, etc.) the appointed successor trustee immediately takes title to the corpus of the trust – by operation law.  This statutorily recognized contractual arrangement is the legal basis for assigning property to an original trustee who can, in turn, be succeeded by another appointee to seamlessly carry on the duties and responsibilities of a trustee.

Transferring & Retitling.  It was mentioned earlier that, in the end, the successor trustee must eventually have the property of the trust (re)titled to him in order to administer the terms of the trust concerning the settlor's assets after the settlor's decease.  Therefore, initially retitling an equity account (for example) at the vendor level into the name of the original trustee does not preclude the necessity for (re)titling a second time that same account into the name of the successor trustee.  The only way the successor trustee can transact on behalf of that equity account is if it is held in that person/entity's name (as trustee).  Thus, when the settlor dies, the successor trustee will need to present clear, written proof that he is the current trustee of the trust as a result of the resignation or incapacitation or death of the preceding trustee.  That written testimony is usually provided by a "certificate of trust" that presents, among other things, the trustee-appointee clause(s) of the trust.

The Conclusion.  The singularly key component associated with the process of funding a trust is that it be done by clear and express "entered for the record" evidence of the settlor's intent to transfer and assign certain property to his trust.  This application always holds true whether accomplished by the retitling of accounts to the name of the original trustee or the assigning of accounts (or any other assets) by a signed bill of transfer, or by an assignment of assets listed on a trust-associated ledger.