Although you may think that your Estate Planning is complete after you have set up your Living Trust, there is still one more very important step: funding. If you create a Living Trust but do not fund it, your Trust is essentially worthless as an Estate Planning tool.
Once you have had your questions answered about how to create a Living Trust and you have taken the steps to establish the Trust, it is time to fund the Trust so you can accomplish the goals you have set for your Estate Plan. Funding the Trust simply means transferring your assets to the Trust. While that seems simple enough, the documents needed for funding your Living Trust will vary, depending on the asset type.
Any asset you fail to transfer to the Trust will not be owned by the Trust and, therefore, will have to go through Probate after you die (unless that asset has a beneficiary designation or is owned jointly with someone). Therefore, funding is not an option, but a requirement. You must transfer ownership of your assets to the Trust while you are living.
Naming Your Trust
The documents created to establish your Living Trust will contain a statement that establishes the formal, legal name of the Trust. That formal name will designate how you refer to the Trust when you name it on certificates of title, deeds, documents assigning an interest in assets, or a beneficiary designation. Having the Trust documents in place, complete with a formal name, is an essential first step to funding the Trust.
Transferring Different Types of Assets to the Trust
Typically the simplest way to transfer real property to a Living Trust is by using a quit claim deed (though other types of deeds such as warranty deeds or special warranty deeds may also be used). You have to ensure that the deed is properly executed and recorded, according to the standards of the state where the property is located. It may also be necessary to file or record Trust documents or a Trust summary document (referred to as a Certificate of Trust or a Memorandum of Trust). If you own the property subject to a mortgage, it is likely the mortgage contract requires you to obtain permission from the lending bank to transfer the property to the Trust. However, some mortgage contracts now specifically do not require prior permission for a transfer to a Revocable Living Trust, where you are the initial Trustee.
Transferring the property may trigger a transfer tax, so be sure to check the requirements in your state. Your state may have a law that exempts the transfer to a Trust from the transfer tax or it may treat the transfer as a full-value sale. Be sure to determine if the tax will be owed and plan for that additional expense.
Personal Property With Title Documents
If your personal property ownership is recorded on a title document, you will have to request a new title to be issued that reflects your Living Trust as an owner. Common examples of these types of property include vehicles such as trucks, cars, motorcycles, RVs, and motorcycles. Many states allow you to designate your Living Trust as the beneficiary on your current motor vehicle title, in which case, the vehicle remains titled in your name and transfers ownership to the Trust upon your death. The Department of Motor Vehicles has simple, one-page forms for this purpose.
Personal Property Without Title Documents
Most of the personal property you own does not have a title document reflecting ownership. Such items include your clothes, jewelry, furniture, collectibles, and other personal effects. The ownership of these items may be easily transferred to your Living Trust by utilizing an assignment of ownership document. The document must be signed and dated and indicate your intent to transfer ownership of the items to the Living Trust. Your Estate Plan should include this document.
Check with your bank to determine what specific forms they need to be completed in order to transfer your checking, savings, or other bank accounts to your Trust. In rare situations, you may need to close your personal accounts and open new accounts in the name of your Living Trust.
Transferring your brokerage account or other investment accounts should be a relatively simple process to transfer ownership, similar to bank accounts. Work closely with your brokerage or financial adviser to determine what documents are required to fund your financial accounts, including stocks, bonds or other financial instruments.
Life Insurance Beneficiaries
Life insurance policies will allow you to designate your beneficiaries. In most cases, you can consider not naming your Living Trust as the beneficiary, but simply designating the primary and contingent people directly. However, in some situations, it may make sense to name your Living Trust as the beneficiary of the Life Insurance policy. Speak to an attorney to determine what is appropriate for you.
Retirement accounts, just like insurance policies, will allow you to designate your beneficiaries. In most cases, you can consider designating the primary and contingent people directly, instead of the naming the Living Trust as the beneficiary. However, if your retirement assets are large, you may want to consider a separate IRA Trust to be the beneficiary. Speak to an attorney to determine what makes sense for your situation.
In order to designate the Living Trust as the rightful recipient of any and all payments made on loans that are owed to you, you can utilize an assignment of rights document to legally declare the Living Trust as the entity with the rights to the debt.
If you transfer your various assets to your Trust, the Living Trust can help you to keep your assets safe from the Probate process and ensure your family and loved ones are cared for. This Estate Planning tool is affordable, effective, and can be done privately to keep your family’s information private. Additionally, a Living Trust can easily be used to manage a large number of assets, of varying type, even if they are located in several different states. By transferring ownership of your assets to your Living Trust you eliminate the need for your family to navigate the costly and confusing Probate process.