This article is part of a 5-part series on Estate Planning with Revocable Living Trusts. If you don’t know how a Revocable Living Trust works and want to learn about the general principles of a trust, start here.
Many folks make the mistake of obtaining a Revocable Living Trust and skip a crucial step – funding the Trust. Funding just means making sure trust has assets that are titled to it. In the same way you own things like bank accounts and property, your trust must own assets so it can give them away. Or at least, as we will see, need to be a beneficiary of your assets after you pass away.
Why funding your Trust is so important
Without Funding, your Trust won’t transfer any assets because it has no assets or property in it to transfer. It’s like buying a car and never putting in gas. Your trust beneficiaries will never have anything to inherit if the trust has nothing to give.
Remember what a Revocable Living Trust is – it’s a separate entity from yourself that you control. A Trust helps avoid probate court because it owns the assets – not you.
Thus, we need to make sure the Trust is funded.
How Trust funding works
Now, funding just means making sure the Trust owns the assets. There are two main, basic ways to accomplish this:
1) retitling assets in the name of the Trust, and
2) updating beneficiary account designations to name the Trust.
In simple terms, we are either transferring the assets into the Trust while you are alive or getting documents in place so that the assets automatically transfer to the Trust once you pass away.
Examples on how to fund a Trust
First, we need to figure out what we want to put in the Trust. Here are some common types of assets that many people own.
- Real Estate
- Bank Accounts
- Retirement Accounts
- Business Interests
- Intellectual Property
- Personal Property
- Brokerage Accounts
- Digital Assets
Of these, we’ll focus on the top three – Real Estate, Bank Accounts, and Retirement Accounts. These tend to be the most important, valuable assets people own.
Real Estate
Let’s start with real estate. To fund your Trust with real property, you need to record a deed at the county clerk’s office that puts the ownership in the Trust’s name. Or, you could file a transfer-on-death deed that would transfer ownership of the property after you pass. There are different ways to handle different types of properties, and it depends on if the property is a primary residence, a rental property, out-of-state, or is owned by an LLC.
Bank Accounts
Next, we have bank accounts. You have a couple of strategies here – I recommend opening a separate bank account specifically for your Trust. You could also change the beneficiary designations of your accounts to the Trust. Another option is to outright change ownership of the account to the trust. There are many ways to handle banking, and it depends on what works best for you, but also the bank.
Retirement Accounts
For Retirement accounts like IRAs, you can update beneficiary designations to the trust so assets transfer after your death, or if you are married, after both you and your spouse pass away. You should not try to retitle the account – just add beneficiary designations. Most brokerages and banks are understanding and will have specific forms or easy online options to change beneficiary designations.
Conclusion
For different types of assets, there are different ways to assign them to your trust or retitle them. Generally, we want the smoothest transition possible without adding too much administrative overhead.
While producing a trust document is one part of the job, the other 50% of creating a trust is funding it. This is a service that we include with our living trust legal services.
At Greenline Law, we help guide you through this process and use our experience to create estate plans that work as intended.