Clients often create a living trust to provide for themselves and their loved ones—only to forget to fund it. Many others mistakenly believe that a trust automatically funds itself after a lawyer approves it. The truth is, you must take steps to fund your living trust if you want your beneficiaries to avoid a long probate process after your passing. Creating the trust document is the first step in the process. However, you must actually transfer property and funds to the trust for it to be effective. Read on to learn more about how you can avoid the probate process and fund your living trust.
Recognize That Each Case is Unique We do not take a “one-size-fits-all” approach to living trusts, and neither should you. The decisions regarding which assets to transfer to the trust need to be made after careful consideration of a number of factors. Your attorney can help you determine what property should be owned by the trust and can explain how to transfer ownership to the trust. In many cases, the client will need to take the steps that make the transfer complete. We can provide full service funding for clients who want additional assistance, but even then, transfer of ownership is not complete until you sign the necessary documents.
Transfer Your Property
Transferring your property to your living trust means drafting a deed, often what is known as a quitclaim deed. You should review your properties to make sure you are deeding them to your trust. Such properties might include:
- Your primary residence
- Vacation homes
- Timeshare or rental properties
- Lots of land or farmland
- Any other property you may own
Many times, your property or estate planning attorney will help you take care of transferring your property when you make your living trust. However, it is important to personally keep an inventory of your properties and make sure they are transferred to your trust. This will keep your beneficiaries out of probate court and protect your properties well into the future.
Transfer Personal Property
Personal property includes most other assets besides your property. Some of your personal property may be titled, which includes property that has a title document such as automobiles, RVs and ATVs, boats, and other vehicles. Other personal property is untitled, such as family heirlooms, furniture, and clothing.
For titled personal property, you will need to obtain a new title showing your living trust as the owner of the property. Your attorney can explain what will need to be done for different types of titled assets and help you decide whether these assets should be included in the trust. For untitled personal property, the process is a bit different. You could transfer this property with an assignment of ownership document, which should be signed and dated.
Transfer Bank Accounts and Financial Statements
Finances can be complicated, which is why it is wise to discuss these assets with your legal advisor so you understand the implications of transferring your financial accounts to your trust. There are several different types of finances that you should review and discuss with your attorney:
- Bank accounts. Talk to your bank about how to title your accounts in your trust’s name. Depending on the wording of your trust documents, It may be possible for a contingent beneficiary to gain access to funds if you become incapacitated.
- Investment/brokerage statements. These accounts could also be titled in your trust’s name or your trust could be named as a beneficiary.
- Life insurance policies. Look these over and make sure the names are correct, and also consider adding the trust as a primary or contingent beneficiary. If you have a spouse, you may name them as the primary beneficiary and the trust as a contingent beneficiary, so your spouse can readily access these funds should you pass away before them.
- IRAs and retirement plans. Retitling your retirement accounts, such as IRAs, 401(k)s, or qualified annuities, could subject you to income tax and possibly penalties. Thus, you should change your ownership or beneficiary designations only after a careful review of your situation
and applicable tax laws.
Once you have determined which assets to transfer and have made the necessary arrangements, keep an eye on your financial statements. Check to see that your trust is listed on them if you intend to make the account part of your trust. If the names on the statements haven’t changed, you might need to inquire further to make sure there haven’t been any mistakes.