Transferring Assets to Your Living Trust
What is a Living, or Revocable Trust?
A living trust, also known as a revocable trust, is a legal arrangement where you transfer ownership of assets to a trustee (often yourself initially) to benefit your designated beneficiaries. During your lifetime, you can add or remove assets and continue to benefit from and manage the assets yourself. You can also change your mind and revoke the trust entirely. Once you pass away, the trust can no longer be changed and your successor trustee takes over and distributes the assets in the trust according to your wishes.
Why Should I Transfer My Assets to a Trust?
Avoid Probate: Probate is a lengthy court process that validates your will and distributes your assets. A trust allows your assets to bypass probate, saving time and money for your beneficiaries.
Privacy: Trust assets typically avoid public scrutiny during probate, unlike assets distributed through a will. Probates are filed of public record.
Maintain Control During Life: You retain control over the assets while you are alive. You can manage them yourself or appoint someone else as trustee.
Smooth Transition in Case of Incapacity: If you become incapacitated, the successor trustee named in your trust can manage your assets seamlessly, avoiding court intervention.
What Types of Assets Should I Transfer to a Trust?
Typically, all assets should be transferred to a trust unless there’s a specific legal reason not to. These are assets that generally go through probate if not included in a trust. Examples include bank accounts, investment accounts (outside of retirement or other tax deferred accounts), business interests, real estate, vehicles, and personal belongings.
What Should Not be Transferred to a Trust?
Tax qualified accounts cannot be owned by a trust. Instead, you can name your trust as beneficiary of those accounts. This allows your trust to receive the assets upon your passing. Qualified assets are assets with special tax treatment, such as IRAs (Traditional and Roth), 401(k)s, 403(b)s, and Health Savings Accounts (HSAs). It is also often best practice to make your trust the beneficiary of any life insurance policies, unless there’s a specific reason not to.
How to Transfer Assets to a Trust?
Identify Qualified and Non-Qualified Assets: Make a list of all non-qualified assets you want to transfer now, and a list of the qualified assets you will leave to the trust after your passing.
Retitle Accounts: Work with your financial institutions to retitle non-qualified accounts in the name of the trust and to update beneficiary designations on qualified accounts. Each institution has a specific process or set of forms you will need to complete, and you will likely need to provide them with some basic information about your trust. Often, this information is summarized in a Certificate of Trust (sometimes called a Memorandum of Trust).
Transfer Titles: Titled assets, such as real estate and motor vehicles, will require you to file paperwork with a County Clerk and Recorder and/or Tag Agency to reflect the transfer of ownership to a trust.
Business Interests: Transferring business interests may require additional considerations depending on the business structure (e.g., LLC, partnership) and any governing agreements. It is recommended to consult with a business and/or estate planning attorney to ensure a smooth transfer.
How Do I Know My Assets Were Transferred?
Account Statements: Once you have retitled accounts, you should start receiving statements which show the trust as the owner and/or your name as the trustee of your trust. You can ask the companies to confirm your trust is the beneficiary of any tax qualified accounts and life insurance policies.
Deeds: For assets with titles transferred, you should receive updated deeds showing the trust as the owner and/or your name as the trustee of your trust.
Consult with an Attorney: If you are ever unsure, an attorney can review your trust and asset documents to confirm successful transfers.
Additional Considerations:
Consult with a Tax Advisor: For complex situations or significant qualified assets, consulting a tax advisor is recommended to ensure optimal tax treatment within your estate plan.
Consult with an Attorney: While this provides a general overview, the process may vary depending on your particular situation, the specific asset type, and your trust document. Consulting an estate planning attorney in your state is highly recommended to ensure proper transfer procedures are followed.
****This summary provides a concise overview of how to fund a standard revocable trust for most individuals, and is not to be construed as legal advice for your specific situation. Please contact us if you have questions or need assistance with forming or funding a trust.
