In order for your Revocable Living Trust to carry out your estate plan, you must legally transfer all your property, assets, and accounts to it. This is a critical step to finalizing your Trust.
We’re going to briefly cover what a trust is and then explore the details behind funding your trust with each major asset class.
What Is a Trust?
A Revocable Living Trust is created in a written document. You, the grantor of the Trust, lay out in detail an arrangement for the management and distribution of your property during your lifetime and after your death.
Typically, you will serve as the trustee (or manager) of the Trust property until you are unable or until your death. The Trust must have one or more beneficiaries – you are the sole beneficiary of the Trust until your death.
You may name anyone you want to receive the Trust property when you die, and you can decide when the heirs/beneficiaries are to receive their inheritance. Since the document is revocable, you may change or terminate it at any time.
What Does It Mean to Fund My Trust?
Simply signing a Trust Agreement does not result in everything being owned and controlled by the Trust.
You have a few more steps to fully and legally re-title your assets and ensure that the terms of your estate plan are followed.
The process of transferring your assets to your Trust and updating your beneficiary forms is called “funding.”
What if I Don’t Fund My Trust?
If you do not properly fund your Trust, your heirs may pay more income taxes than necessary, may have to go through probate, or even worse — the wrong people may inherit your estate.
Funding your Trust correctly is a critical step to establishing an effective Trust Agreement that you can rely upon.
How Do I Fund My Trust?
There are different methods and options for each type of asset, but it generally involves defining and transferring ownership of different assets over to your Trust.
First, you should seek advice from your estate planning attorney, accountant, or your financial advisor. This process can be complicated and the hours and headaches you will save working with a professional are more than worth it. Together, they should be able to advise and help you in considering your options and in completing the paperwork. At the very least you should get some guidance from a pro.
How Exactly Do I Name My Trust?
If you are changing the ownership of a bank or financial account to your Trust or updating a beneficiary designation for life insurance or retirement accounts, you need to know how to write out the name of your Trust on all the forms.
There are three parts of any Trust’s legal name:
- The Grantor’s complete legal name (that is usually you),
- The name of the Trustee (that is also usually you), and
- The original Date of the Trust (that is usually the date you sign your Trust).
For example, if John A. Smith signs a Trust Agreement on March 15, 2021, it may be known as:
“THE JOHN A. SMITH REVOCABLE TRUST DATED MARCH 21, 2021, JOHN A. SMITH, TRUSTEE.”
If John is married to Rebecca S. Smith and they do a Trust together, it might be known as:
“THE JOHN AND REBECCA SMITH JOINT REVOCABLE TRUST DATED MARCH 15, 2021, JOHN AND REBECCA SMITH, CO-TRUSTEES.”
A Revocable Trust may be changed (i.e., amended) any time after the original signing. Regardless if there are one or more amendments you will always use the date the original trust was signed when referencing the Agreement.
It may also make sense to add at the end of any Trust’s name a reference like this: “as it may now or hereafter be amended.” This will ensure that assets directed to the Trust will be governed by the most recently signed Trust Agreement.
You should note that your social security number is almost always the tax identification number for your Revocable Trust. If the Trust you are funding is irrevocable, you will need to obtain a new tax identification number from the Internal Revenue Service.
How to Move Assets into a Trust
Transferring Real Estate to Your Trust
How to Fund: Your Trust can be funded with your real estate by signing a deed.
A deed is an official written document declaring a person’s legal ownership of a property.
The type of deed depends on many factors. Preparing a deed is not as simple as it might appear. If you mishandle it there may be negative tax consequences, and you could also lose your title insurance.
Without the right type of deed, there also may be delays and additional costs when you try to sell or refinance the property. You have the option of recording the Deed or keeping the unrecorded original in your files. In some cases, recording the deed can be the better choice, but in other cases it may be a big mistake. This is when you must rely on your legal counsel for your unique situation.
Types of deeds: There are several different types of deeds and the one that is right for you depends on your particular situation and goals.
- Unrecorded Quit Claim Deed: Signing a Quit Claim Deed and keeping it in your estate planning file (as opposed to recording it with the Register of Deeds) is sometimes a good option. In that case, you should also consider signing an accompanying memo explaining the purpose of the deed.
- Recorded Ladybird Deed: A “Ladybird” deed may also be an appealing option as these types of deeds are typically recorded and avoid confusion that sometimes arise with unrecorded Deeds. With a Ladybird, you continue to own the property until you pass away but upon your death title to the property is automatically given to whomever you specify in the deed.
- Recorded Quit Claim Deed: Finally, signing and filing a deed that directly conveys the title of your real estate to your Trust may also be advisable. Filing the deed with your local county “Register” is an extra step and involves more work. Also, once title is registered you may have more maintenance to deal with including if you refinance or when you sell the property. But the maintenance is usually nothing more than a small inconvenience and may be worth it if your situation calls for more permanence in setting ownership.
There are pros and cons for the different ways of handling real estate funding. In most cases you and/or your spouse will need to execute a deed for each parcel of your real estate in a manner that is consistent with your estate plan.
As simple as signing a deed may seem, we recommend you always consult with a qualified estate planning attorney to evaluate your options and prepare the deed for you.
Transferring Retirement Accounts to Your Trust
How to Fund: You cannot transfer most retirement accounts to a trust while you are living, but you can dictate who gets what when you pass by naming beneficiaries.
One of the more complicated asset types for funding purposes are retirement accounts (e.g., IRA, 401k, 403B, and annuities). Distributions from tax-deferred accounts are governed by strictly enforced tax laws.
These tax laws are designed for the account owner’s retirement, not for his or her estate planning and heirs. You cannot, for example, transfer the ownership of a Retirement Account to your Trust for estate planning purposes — that will cause the immediate taxation of the entire Account and penalties may apply.
Another complication related to retirement accounts involves naming beneficiaries. The beneficiary designation form governs how your retirement account is handled and distributed after you die. It is independent of what your Trust or other documents might say. The beneficiary form is the “governing instrument,” and you need to be sure it conforms to your estate plan.
Although naming your primary and contingent beneficiaries may seem straightforward, in many cases it is not. The choice of the appropriate beneficiary may include your spouse, children or other family members, or a charity. But you also need to consider if it is appropriate to name your Trust instead.
While naming your spouse the primary beneficiary is usually advisable, for second marriages it may not be the desired option. Naming your children or other beneficiaries as contingent beneficiaries may also seem like the natural choice, but if they are not ready to handle an inheritance (e.g., if they are very young or not mature enough), you will need to consider naming your Trust.
Additionally, larger estates require further analysis for tax planning reasons. In these cases, it is especially important to seek advice from your accountant or CPA, and your estate planning lawyer. Otherwise, your heirs may pay unnecessary income taxes, they may end up in probate court, or even worse — the wrong person may receive the funds after you have died.
Transferring Bank Accounts to Your Trust
How to Fund: Contact your bank and ask them to change the ownership of your account to your trust OR use a “Pay on Death” form.
Generally, your bank and credit union accounts should be transferred to your Trust.
Usually, all you need to do is take a copy of your Trust Agreement to the bank and ask the manager to assist you in making the change. Some financial institutions will allow you to simply change the name on your account without obtaining a new account number. But in many cases, banks require a new account number and you will need to reestablish all of your automatic bill/deposit arrangements.
If transferring the ownership of your bank account to your Trust is inconvenient, you might consider completing a “Pay on Death” or “Transfer on Death” (a “POD” or “TOD”) form with your financial institution. By naming your Trust the POD beneficiary, the account remains in your individual name, or joint name with your spouse, but when you die the account is transferred directly to your Trust without going through probate.
Transferring Financial Investments to Your Trust
How to Fund: Contact your bank to transfer all investment account ownership to your Trust
Investments (other than your retirement accounts) may be handled in the same way as your bank accounts, but since investment accounts usually have bigger balances, it is that much more important that you change the ownership to your Trust.
If you have a financial advisor, he or she should be able to help you get this done.
Generally, you will need to transfer the account to your Trust with an Instruction Letter directing the investment institution to change the name on your existing account to the Trust (if they allow that). Alternatively, you may need to complete forms to set up a new account in the name of the Trust.
In any event, you will also need to provide the financial institution with a copy of your Trust, or at least the pages containing the name of the Trust, name of the Trustees, and the signatures.
Transferring Life Insurance to Your Trust
How to Fund: Name your Trust the primary and only beneficiary.
Life insurance is income tax free and upon your death is easily paid into your Trust for your Trustee to handle according to the terms of the Agreement. But if you are married you may want to name your spouse the primary beneficiary and the Trust the contingent beneficiary.
In order to get this done, the life insurance company will likely need a copy of your Trust, or at least the pages containing the name of the Trust, name of the Trustees, and the signature page.
Life insurance is generally tax-free, retirement accounts are taxable, and you need to be careful of the tax consequences when making changes. Holding some accounts jointly may be suitable, but in many cases, joint ownership is not a complete solution. If you own a business it is particularly important to make sure your ownership papers are in order.
Transferring Business Interests to Your Trust
How to Fund: Complete an Assignment Form to transfer ownership to a Trust OR use a “Pay on Death” form.
Privately owned business entities such as corporations and LLCs should have ownership paperwork. Certificates are usually issued when a person sets up a business entity with the names of the owners and the number of shares. The certificates should be accompanied by a written and signed “Resolution” which is a written document signed by all the owners testifying to the ownership.
If you have all the necessary paperwork, transferring the ownership of your business to your Trust may be done by completing an Assignment form. It also helps to do an accompanying Resolution signed by the other owners, if any, confirming that they recognize your Trust as an owner.
In many cases it may be advisable to designate your Trust as the “Pay on Death” or “Transfer on Death” (“POD” or “TOD”) designee in the same way discussed for bank account above. But in this case the designation form is done with your estate planning lawyer.
With a Transfer/Pay on Death designation you remain the owner of record of the business interest until you die, but upon your death the ownership transfers automatically to whomever you designate, including your Trust if applicable. This is especially helpful if your business has outstanding debt or you have partners — using a TOD designation avoids questions of ownership and control during your lifetime.
Transferring Tangible and Intangible Property to Your Trust
How to Fund: Complete an assignment form to transfer ownership.
Typically, your tangible personal property (i.e., your “stuff”) is transferred to your Trust by means of a simple, one-page Assignment form. Intellectual property (like copyrights and trademarks), oil and gas interests, and other assets must be transferred to your Trust as well and there may be special forms to do so depending upon the type of asset.
Transferring Assets in Other Countries to Your Trust
How to Fund: Consult a lawyer and complete all necessary transfer documents in each country.
Be sure to coordinate the ownership of assets in other countries with your US Estate Plan, but be careful that any changes you make do not trigger tax liabilities or other unexpected results.
We strongly advise you to seek local legal and tax counsel in regard to any real estate or other investments you have outside the United States. And usually, you will need to have another set of estate documents drafted for you in that country.
Transferring Motor Vehicles and Watercraft to Your Trust
How to Fund: Transfer your title(s) to your Trust at the appropriate government office.
Motor vehicles and watercrafts have registered titles. Those items can be transferred to your Trust at the government office responsible for handling the registration. You need to be sure you notify your insurance company before the transfer.
In many cases, local laws permit family members to transfer title to themselves after your death without the need for probate and without sales or other taxes. So, it may not be necessary for you to transfer title to your Trust, and in fact, it may not be advisable.
Be sure to consult your attorney even with this otherwise seemingly benign matter.
The Bottom Line on Funding Your Trust
Every family and estate plan is different, and while the suggestions above may be suitable for your family and circumstances, they might not be. You should seriously consider asking your lawyer, accountant, or financial advisor what to do.
Understand that if you have a trust, one way or another, everything you own may need to be directed to your Trust or it will not work as designed.
Even after you have fully funded your Trust, you need to keep it funded (i.e. updated with your latest assets). And that is not easy. In fact, the #1 problem faced by families after a Trust owner dies is that one or more assets falls outside of the Trust.
Fortunately, there are options that make it much easier, like the application we made to help people, exactly like you, get your Trust funded and keep it that way.
The Easiest Way to Fund Your Trust and Keep It Funded Is by Using Software to Help
As a trust and estate attorney with 25 years of experience I know how difficult it is to get a trust funded and to keep it funded over the years. I’ve tried everything to help my clients get it done but I know a good number of them don’t despite the best of intentions.
There are many reasons Trusts don’t always get fully funded; garden variety procrastination is one. Estate lawyers are at fault too, we don’t always give clear instructions. And of course it’s time consuming and less than fun.
Fortunately, there’s something to help you get your affairs in order and keep them that way. With LawSafe® you can list all of your assets and leave instructions for every asset, policy, and account.
You and your professional can then review each asset to be sure it is optimally funded in your Trust. It’s like a custom vault that securely condenses all of these moving parts into one simple place — drastically lowering the amount of effort you need to stay on top of things.
Plus, once a year, LawSafe® will send you a reminder email to review your list and make sure everything is up to date. The best part, however, is that you can connect your Trustee to your LawSafe® so he or she has access when the time comes.
The fact is, even if you fund your trust, keeping it funded over the years is a big challenge, let alone maintaining all of that information in one place.
That’s why we created LawSafe® — it’s a complete solution to getting your affairs in order.