What’s an “Assignment and Nominee” agreement and what does it do? Some attorneys use such an agreement as a belt and suspenders approach to funding.
Funding a trust is critical when you have a trust-based estate plan. A trust is a receptacle, like a box. Before you fund the trust, it’s like the box is empty.
You fund a trust by retitling assets into the name of the trust. Let’s say you have several items that you want in the trust. Let’s say you have items A, B, C, and D that you want to go to the trust. Let’s say you fund assets A, B, and C to the trust, but forget about item D. Maybe it’s an asset you don’t see frequently and it completely slipped your mind. Assets A, B, and C are in the trust and will avoid probate. Item D isn’t in the trust and will need to go through the probate process (assuming no non-probate transfer process applies to it, such as a beneficiary designation).
In some states, probate can be a costly and time-consuming undertaking, depending upon the nature and extent of the assets subject to probate. Typically, if it’s not real estate, a small amount of assets (which varies by state but typically is less than $100,000) can pass through probate using the express lane of “summary” proceedings where the formalities are loosened. In some states probate even above these levels isn’t as costly or time-consuming. It just depends upon your area.
But, if your trust is fully funded, the assets don’t need to go through the probate process. The Assignment and Nominee agreement is one way used by attorneys to fund the assets into the trust. Here’s how it works.
An Assignment and Nominee agreement has two parties, the “Trustee” and the “Trustor” (also known as the “Grantor” or “Settlor”). The Trustee is the person in charge of the trust assets. The Trustor is the person who sets up the trust. Sometimes they are the same person. In fact, most commonly they are the same person.
Let’s say Mike sets up a trust, so he’s the Trustor. He also names himself as the Trustee to manage the trust. So, he’s wearing both hats. With an Assignment and Nominee agreement, Mike as the Trustor assigns assets to the trust, thus transferring them to it. Then Mike, as the Trustee who manages the Trust, sends them back to Mike, in his individual capacity, (i.e. as Trustor), to hold the assets for the trust for safekeeping. So, even though the asset is back in Mike’s hands, it is owned by the trust and for the trust.
Typically, you’re going to transfer most items by some other method, such as changing titles on each asset directly. But when you’ve forgotten about an asset, the Assignment and Nominee agreement can be a belt and suspenders approach to move that forgotten asset into the trust.
The Assignment and Nominee agreement is not a panacea, rather it is a backup to traditional methods of transferring assets into the trust. Also, the agreement by its own terms doesn’t apply to some assets, such as retirement plan assets.
Funding a trust is essential. Otherwise, the trust is like an empty box. The Pour-Over Will might move the assets into the trust at death, but that would be through the probate process. Also, you would have lost any lifetime benefit of the trust, such as management of the assets during a period of incapacity.
An Assignment and Nominee agreement can act as a backstop on the important funding process.
Stephen C. Hartnett, J.D., LL.M.
Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128
- “Last Will and Testament” Origin - April 7, 2021
- Beneficiary Designations and the SECURE Act Basics - March 17, 2021
- Updating Your Plan Part 3: Beneficiary Designations - March 3, 2021