Before we begin discussing how specific properties are transferred to a living trust, we should discuss how trusts are generally named and how property transferred to a living trust is generally titled.
How to Title Property
First, the creation of a trust involves the bifurcation of rights to the trust property; i.e., the title to trust property is split between the trustee and the beneficiaries. The trustee holds legal title to the property and the beneficiaries hold equitable title. Since the trustee holds legal title to the property, the property is always held in the trustee's name.
This point is often confusing because many people believe that property should be held in the name of the trust. However, the trust itself is not a legal entity that can hold property. Instead, it is simply a name denoting the legal relationship between a grantor and a trustee. When we say that property is transferred to a trust, we really mean that property is transferred to the trustee to be held in trust according to the agreement between the grantor and the trustee.
Consider the following example - Let's assume that you hire a babysitter to take your children to the movies for the evening. Assume, also, that you give the babysitter $50 to pay for the tickets and some refreshments. In this example, it should be clear that a trust has been created between you and the babysitter; i.e., you are trusting the babysitter to hold the $50 and use it for the benefit of your children. Accordingly, in this trust - as in all trusts - you give the money or other property to the trustee (i.e., your babysitter) to hold “in trust” for the benefit of your children.
So, just to emphasize this point one more time, whenever it is said that property is being transferred to a trust, what is really meant is that property is being transferred to a trustee to be held “in trust” for the benefit of someone else. Accordingly, property transferred to a trust is always titled in the name of the trustee - not the trust. At a minimum, then, property held in trust should be titled in the name of the trustee (or "trustees" if there is more than one) and should contain the following information:
- The name of the trustee, together with the words "trustee" or "as trustee" to indicate that the person named as trustee is serving in a fiduciary capacity.
- The name of the trust.
- The date of the trust.
Here's how to title property transferred to a trust - Let's assume that John Doe created a revocable living trust on December 2, 2008 for the benefit of his daughter, Mary. John is the sole trustee and his brother, James, is the successor trustee. Assume, further, that John decides to transfer his saving account at a local bank to this trust. This savings account should be titled as follows:
"John Doe, Trustee of the John Doe Living
Trust, dated July 25, 2012"
Although this language is generally sufficient to identify the trust and ownership of the property, it may be desirable to add additional information. For example, some estate planning attorneys prefer to include a statement referencing successor trustees. Some also prefer to describe the type of instrument creating the trust, and some prefer to include a statement referencing subsequent amendments to the trust instrument. An example of the titling of property containing this additional information is as follows:
"John Doe, Trustee of the John Doe Living Trust, or his
successor in trust, u/d/t, dated July 25, 2012,
including amendments thereto"
Your estate-planning attorney will have a preference as to how the title should appear and you should follow his or her advice. Attorneys are familiar with applicable laws and local customs and generally know the proper way to title property. If a financial institution makes the change for you, then the financial institution may state the title according to its own policy.
You will notice, also, that we have used the letters u/d/t in the above title, which stands for "under declaration of trust." If the trust was created under a trust agreement, then the abbreviation u/a would be used instead, meaning "under agreement."
Naming the Trust
The trust instrument should state the name of the trust and the name of the instrument creating the trust. In our example above, the name of the trust would be:
"John Doe Living Trust"
Using the same example, the name of the instrument creating the John Doe Living Trust would be:
"Declaration of Trust establishing the John Doe Living Trust,
dated July 25, 2012"
Again, the more precise you are in establishing both the name of the trust and the instrument creating it, the less confusion will occur after the trust is put in place.
Creating a Property Schedule
As discussed earlier, it is not entirely clear that a formal transfer of property is required when the grantor is also the sole trustee. Except in states like New York, it appears to be legally permissible to simply declare certain property to be held in trust. While that may be the case, we believe it is the far better practice to formally transfer each piece of property to the trust. To do otherwise, runs the risk of not having the property in your trust when the time comes.
Still, the customary practice when the grantor is also the sole trustee is to make a declaration of trust, in writing, and to state that certain property is held in trust for the benefit of certain beneficiaries. The property declared to be held in trust is then listed in a separate schedule, which is attached to the declaration of trust.
The following is a sample preamble to a declaration of trust:
DECLARATION OF TRUST
THIS DECLARATION OF TRUST is made by John Doe of City, State, acting herein both as "Grantor" and as "Trustee."
W I T N E S S E T H :
WHEREAS, I wish to create a trust of certain property for the benefit of myself and others, such property being described in Schedule A attached hereto and having been delivered this date to me as Trustee of the trust created hereunder; and,
WHEREAS, I or another person or persons may wish to add other property to the trust at a later date by gift, devise or bequest under the terms of a Last Will and Testament or otherwise by depositing such other property with me, as Trustee, or with any successor Trustee or Trustees; and,
WHEREAS, I am willing to perform the duties of Trustee in accordance with the terms and conditions and within the powers and limitations hereinafter set forth in this instrument;
NOW, THEREFORE, I agree to hold such property and any other property acceptable to me that any other person or persons may add to the trust by will or otherwise, all of which is hereinafter referred to as the "trust property," and to manage, invest and reinvest the same in trust for the following uses and purposes:
The property referenced in the preamble is then listed in a separate schedule attached to the back of the trust instrument. The following is a sample Property Schedule:
JOHN DOE LIVING TRUST
The following property is held in trust by me, John Doe, as Trustee of the John Doe Living Trust, as established under a Declaration of Trust, dated July 25, 2012:
1. A single-family residence located at 123 Street, City, State, as more particularly described in that Conveyance deed to John Doe, Trustee, dated July 25, 2012, and recorded in the Registry of Deeds in City, State, on July 25, 2012 at volume 1204, page 396.
2. First Bank, checking account, account # 123123123.
3. All household furniture and furnishings located at 123 Street, City, State, as more particularly described in a Deed of Gift, dated July 25, 2012, from me, John Doe, as Grantor of the John Doe Living Trust to me, John Doe, as Trustee of the John Doe Living Trust.
Giving Copies of the Trust Instrument to Others
When you start transferring property to your living trust, you may be asked to provide copies of the trust instrument to banks and other financial institutions that hold your accounts. This is a justifiable request because the financial institutions need to know that the trust really does exist and that you are the trustee. Even so, you may not be too happy about giving everyone a copy. After all, trusts are supposed to be private.
Generally, there are compromises that can be made. For example, financial institutions will generally accept copies of relevant pages of the trust instrument instead of the whole document. The relevant pages generally consist of the page with the grantor's name, the page appointing the trustee, the page containing the trustee's powers, and the page with your signature and the trustee's signature. These pages are generally sufficient to demonstrate the existence of the trust and your authority to transact business on its behalf.
Some states also provide for a statutory certification of trust, which can be given in lieu of the trust instrument. Check with your state to see if it provides for a statutory certification of trust (also referred to as a "certificate of trust" or an "abstract of trust"). The purpose of a statutory certification of trust is to avoid having to give highly personal information concerning the names of the beneficiaries and the provisions relating to the disposition of property. One of the states that provides for a statutory certification of trust is California. Click to view California's statute authorizing a certification of trust. Click here to view a sample certification of trust document prepared under California's statute.
Many financial institutions also have their own certification of trust forms, which they will ask you to complete in lieu of providing a copy of the trust instrument. These forms are designed to give the financial institutions the information they need while retaining your right to privacy regarding beneficiaries and property distributions under the trust.
In certain cases, a financial institution may ask for a certified copy of the trust instrument. Since a trust instrument is not a public document, it is not possible to have the trust instrument certified by a clerk of the court or other government official. However, most financial institutions will accept a copy of the trust instrument and a letter from an attorney indicating that the copy is a true and correct copy of the original trust instrument and that the original trust instrument remains in full force and effect.
As a practical matter, you will find that most financial institutions are more than willing to work with you to obtain the necessary information. If not, then you always have the right to shop around for another place to do business.
Employer Identification Numbers (EINs)
If you are the grantor and the sole trustee of your revocable living trust, then all properties that you transfer to your trust will continue to be listed under your social security number for federal tax purposes. In that case, your revocable living trust is not considered a separate taxable entity and does not have to file its own income tax return. Instead, you are treated as the owner of the property and all income derived by that property is reported to the IRS under your social security number.
You are treated as the owner because you still have full control over the property even though you transferred it to your revocable living trust. You can take the property back any time you want because you have the right to terminate the trust at any time. As the sole trustee, you also have full control over the management, investment and distribution of the property. For all practical purposes, you have the same control over the property that you had before you transferred it to your trust. It stands to reason that the federal tax laws would continue to treat you as the owner of the property and require that you report the income on your tax return each year. The federal tax laws refer to this type of trust as a "grantor trust."
With a grantor trust, all trust investments are required to be registered under your social security number for income tax purposes. The income earned by trust property (in the form of dividends, interest, and capital gains) is reported by financial institutions directly to you and to the IRS on Form 1099. That income is then reported by you on your personal income tax return for that year.
A grantor trust is the only type of trust that uses the grantor's social security number as the taxpayer identification number for trust property. All other trusts are considered to be separate taxable entities and are required to obtain their own taxpayer identification number, which is also called an "employer identification number." Be careful, though, because your revocable living trust will cease to be a grantor trust (thereby requiring that it obtain its own taxpayer identification number and file its own tax return) upon the occurrence of any of the following events:
- Your death.
- Your termination as a trustee.
- The addition of someone other than you as a trustee.
- The trust becoming irrevocable during your lifetime.
As stated above, non-grantor trusts are separate taxable entities under federal tax laws. Non-grantor trusts must obtain their own employer identification number (EIN) and must file their own income tax returns. Form SS-4 is used to request an employer identification number from the Internal Revenue Service.