How to Transfer Property Into a Living Trust
The method of transferring property into a trust is essentially the same for any type of trust. While there are different implications and consequences for transferring property into a revocable living trust versus an irrevocable trust, all trusts can only control and manage those assets that are transferred into the trust. Thus, it is crucial to understand how to transfer property into a trust. Since the revocable living trust is the most common type of trust, we will focus on that.
If you already have a revocable living trust, then you have taken the first of two steps, which is creating your trust. But you still need to make sure that the second step is completed, which is funding your trust.
Funding your trust is the process of transferring ownership of your property from you personally to the name of the trust. For example, if your name is Sally Smith and the name of your trust is The Sally Smith 2008 Revocable Living Trust, then you would need to make sure that the title to your assets are in the name of The Sally Smith 2008 Revocable Living Trust.
Once a property transfer is complete, Sally no longer owns the asset as an individual. Rather, her living trust owns the asset. What is important to note here is that Sally will still have complete control of the asset, since in most situations, the grantor is also the initial trustee. It is also common for the grantor to be the initial beneficiary.
In the case of a revocable living trust, if you are the grantor, trustee and beneficiary, then you will still control and benefit from the trust assets, and nothing will change from a practical perspective. In fact, with a revocable living trust, the IRS will disregard the trust completely and you would continue to use your social security number for tax purposes. Apart from the IRS and other tax agencies, “beneficial ownership” will change from you personally to the trust, thereby avoiding probate, among other things.
The following is a summary of the funding process for common asset types. Please note that there are a number of asset types and what follows is not an exhaustive list:
1. Real Property.
If you already own real estate, preparation of a document called a “trust transfer deed” is required to transfer the property into your trust. This document allows for a simple transfer of title from your personal name to the trust name. It is essential that a complete estate plan includes a trust transfer deed for every property you own. The trust transfer deed must be signed, notarized and recorded with the county within which the property is situated. Once the deed is recorded with the county, the property will be “funded” in the name of the trust. If you acquire additional properties in the future, please instruct the title company to title the property in the name of the trust at the close of escrow (i.e., the grant deed you receive lists your trust as the grantee, and not you personally).
2. Closely Held Corporations, LLCs, and Partnerships.
The shares, units or interests of any company should be transferred to a revocable living trust by preparing a document called an “Assignment” (e.g., Assignment of Stock or Assignment of Interest). Once executed, this document will transfer your shares of a company to your trust. We suggest that you provide a copy of the Assignment to the Secretary of the company. If you form (or acquire interest in) any LLCs, corporations or partnerships in the future, you should hold title to your shares, units or partnership interests in the name of your trust. For example, for an LLC, the “Member” should be your trust; for a corporation, the shareholder should be your trust; for partnerships, the partner should be your trust.
3. Bank Accounts.
Bank accounts should be re-titled in the name of your trust. This is accomplished by completing a form provided by the bank to change account ownership to the trust.
4. Taxable Brokerage Accounts.
Like bank accounts, taxable brokerage accounts should be re-titled in the name of your trust. This is accomplished by completing a form provided by the brokerage to change account ownership to the trust.
5. Retirement Accounts.
In simple situations, where you have minimal assets in an IRA, 401k or other Qualified Retirement Account, we suggest designating a spouse or child as the primary beneficiary and the trust as the contingent. However, if your retirement account has significant assets, we may suggest creating a retirement trust, which is a different type of trust, for funding purposes.
6. Life Insurance.
We suggest designating a spouse or child as the primary beneficiary and the trust as the contingent. However, if the life insurance is significant or if there are estate tax concerns, you may instead consider creating an irrevocable life insurance trust (ILIT).
7. Cars.
While you can re-title vehicles in the name of a trust by completing a change of ownership form with your local Department of Motor Vehicles (DMV), this is ultimately not necessary for probate avoidance, since the DMV has an easy way to handle this after you pass.