Creating an estate plan and keeping it updated is a critical step in securing your assets, protecting your loved ones, and ensuring your legacy continues long after you’re gone. But there’s an additional vital step that many neglect to complete: setting up a living trust.
If you didn’t omit a living trust from your estate plan, bravo! You likely signed a trust agreement—but it’s important to make sure your planning didn’t end there.
Why You Need a Trust
A living trust—also known as a ‘revocable trust’—grants more privacy to your estate by making it possible to bypass the probate process. In addition to being very public, the probate process can be costly, and can also delay the transfer of assets to your beneficiaries. A revocable trust allows assets to pass to beneficiaries without the involvement of probate court.
In order for your trust to function appropriately, however, your trust needs to be funded. Trust funding is the process of transferring assets into your trust, and coordinating beneficiary designations so that your assets can change ownership without the involvement of the courts. Holding your assets in a trust can also protect them from divorce, creditors, and even your family’s poor decision-making.
Trusts can get quite complicated, and for your trust to continue to meet your estate planning goals, it is paramount that your trust be fully funded. Having a fully funded trust means that all of your assets are transferred into it. For example, if you purchase a vacation home after setting up your trust, you need to make sure it is moved into your trust.
One of the most difficult components of trust funding is the amount of time and effort it takes to transfer your individual assets to your trust. While adding beneficiary designations to investment accounts, and adding payable-on-death designations to your bank accounts may be painless, transferring real estate, collectibles, and other high-value assets may require considerably more time and bureaucracy.
6 Steps to Successful Trust Funding
1. Transfer Real Property
Real property is transferable to a trust using a recorded deed. If the property is levied by a mortgage or homeowner’s association, you may need to obtain permission from the lender or association before transferring the asset. Be mindful that real property transfers typically involve a transfer tax, and other additional fees. Your estate planning attorney can aid you in identifying exemptions, and otherwise help you minimize these fees.
2. Fund Business Interests
Business interests require you make several considerations before transferring them into your trust. Corporation shares, LLCs, and partnerships can be retitled in the name of the trust, though you’ll need to pay close attention to the articles of incorporation, LLC operating agreement, or partnership agreement to determine if there are any specific procedures you need to follow, or transfer restrictions. Sole proprietorship is as easily transferred as any other property in your name would be. Remember to transfer the business name to retain customer goodwill towards it.
3. Transfer Titled and Untitled Personal Property
Titled personal property—like cars, motorcycles, and airplanes—require a new title, indicating the trust as the new owner. If there is a lien on your property, you may need the approval of the lender. Additionally, the transfer may be subjected to taxes, fees, and insurance premium changes. Personal property is transferred with an assignment of ownership document, which must be signed and dated, and describes the property in detail.
4. Transfer Financial Accounts
Bank and brokerage accounts should be transferred, but it may be necessary to close the original account and open a new one in the trust’s name. CDs may be delayed until they mature; you would then open a new CD in the trust’s name to avoid penalties. Annuities should be handled with the guidance of your annuity advisor and estate planning attorney to determine the best funding approach.
5. Designate The Trust as Beneficiary
For assets like retirement accounts, annuities, life insurance policies, and medical savings accounts, it’s recommended that you designate the trust as the primary beneficiary to circumvent certain sanctions. Should the trust be listed as primary beneficiary in a will, any assets that pass through it will “pour” into your living trust, allow it to catch any assets that may not have been transferred.
6. Get Assistance from your Estate Planning Attorney
More complicated transfers—like royalties, intellectual property, complex business interests, and gas, oil and mineral rights—should be carefully arranged with the assistance of an estate planning attorney.
Attorney Kristel K. Patton of Empowered Legacy Planning is here to take the guesswork out of setting up and funding a living trust—-or other type of trust appropriate for your needs. We go above and beyond to provide customized solutions, paying acute attention to detail. Contact us today, or register for one of our upcoming Legacy Night events, which are designed to inform and educate you on a variety of relevant subjects. There’s no better time than now to empower your legacy!