Funding a Revocable Living Trust

From avoiding probate and having ultimate flexibility over their assets to make changes as needed, there are several reasons people choose to create a revocable living trust.

However, you can’t simply create and sign a revocable living trust and it goes into effect. Like all legal documents, there’s a process to follow to ensure your trust functions properly and it does what you intended for it to do.

That process not only involves preparing it correctly, but also funding it properly. Funding your trust is the process of transferring your assets from you to your trust. There are a few ways to do this, and we’ll discuss them in this article.

We’ll also address the advantages of a revocable living trust and what assets you should – and should not – use to fund it.

What is a Revocable Living Trust?

A revocable living trust gets their name for two reasons. “Living” because they’re made during your lifetime and “revocable” because you can alter or modify the terms at any time. As life changes, you can remove beneficiaries or designate news ones, and adjust the rules of how your assets are managed.

The revocable living trust has been a significant estate-planning tool for many years and is the foundation for most estate plans. It provides privacy, while avoiding probate and family in-fighting. It ensures the right money gets into the right hands at the right time.

As the trustmaker of the revocable living trust, you are also the trustee. This means that you are the person who controls the assets in the trust and handles the administration – such as tracking income and tax returns.

Why Transfer Your Assets to a revocable living trust

Compared to other legal documents, such as wills, revocable living trusts provide benefits such as increased privacy and more flexibility.

What are the benefits of putting your assets into a revocable living trust? Here are the top five:

Avoid Probate – One of the biggest advantages of revocable living trusts is the avoidance of probate. Assets held in a trust avoid probate because the trust itself doesn’t diminish with the trustmaker.

Privacy – Living trusts are never filed with a court, therefore they do not become public record. As mentioned above, living trusts also help avoid probate, which keeps your records our of public proceedings.

Flexibility – Many individuals find that flexibility to alter their living trust as they see fit is best suited for their situation.

Avoid Guardianship or Conservatorship – If you were to become disabled or incapacitated, your assets would be subject to the restrictive rules of guardianship or conservatorship. A revocable living trust allows you to name a successor trustee so that someone can manage your trust and assets for you if you can no longer do it yourself.

Continuous Management – By naming a professional trustee to manage your property, the wealth that you’ve accumulated can continue to grow for multiple generations and you can put restrictions on the income or withdrawals.

Assets that should be put in a Revocable living trust

Most individuals choose to create a revocable living trust to avoid probate fees. The more your assets are worth, the more it will cost to probate it. Therefore, it’s smart to put high-dollar, valuable property items in the trust. These items include:

  • Real estate property
  • Personal stock or bonds
  • Valuables such as antiques or family heirlooms
  • Valuable collections
  • Precious metals
  • Copyrights
  • Business shares/stock

Remember, you can add (or sell) assets to a revocable living trust at any time. However, there are also some assets that should not (and can not) go into a living trust.

HSAs and MSAs – Health savings accounts and medical savings accounts are designed to pay for qualified medical expenses and are subject to taxation. They cannot be retitled in the name of your trust.

Life Insurance – While you can change your life insurance policy’s ownership to the trustee named in your trust, creditors have access to these funds. And revocable trusts do not protect assets from creditors if the trustmaker passes away with debt.

Vehicles – Retitling vehicles to your trust will depend upon the state in which you live. Some states charge a title-transfer fee and taxes.

Qualified Retirement Accounts – While you can retitle 401ks, IRAs, and other qualified retirement accounts to the name of the trust, this does bring about income taxes on the entire amount in the year of the transfer.

There are several other assets that should, and should not, be put into a revocable living trust. Reputable estate planning attorneys understand these matters in the states in which they are licensed to practice in. It’s best to reach out to an attorney to discuss your unique situation.

How to fund & Transfer your assets to a revocable living trust

Once you’ve decided a revocable living trust is right for you and signed the legal agreement, you must then fund your assets into the trust.

Depending on the type of property being funded, there are three ways you can fund your assets into the trust:

  • Change the title or ownership – Best for real estate, banks accounts, investments, stocks and bonds.
  • Assign ownership rights – Best for valuables such as antiques and jewelry, copyrights, and business shares.
  • Change beneficiaries – Best for retirement accounts, life insurance policies, and HSAs/MSAs.

How you fund your living trust depends on the type of asset you’re funding it with. For example, if you’re transferring real estate then you will need an executed deed – this requires witnesses, a notary, and more. Your estate planning attorney can help advise on the steps to follow based on the state in which you live.

If you are funding personal property that has a title – such as a vehicle – you must obtain a new title to show the living trust as the owner. Some states allow you to keep the vehicle in the trustee's name and transfer it to the beneficiary upon death.

Funding a living trust with personal property such as valuables – antiques and jewelry – requires you to adequately describe the property and transfer with an assignment of ownership document.

The funding process for a living trust is not difficult, but it is time-consuming. There are several steps that can be handled online, by nail, or telephone, but there are some financial institutions that require proof of trust and identity. If this is the case, an attorney will prepare a certificate of trust that identifies trustees and explains the powers given – it does not reveal information about your assets or beneficiaries.

Funding your living trust is extremely important because if you’ve signed the agreement but not changed titles, you will not avoid probate.

You and your attorney can create a valuable trust, but until you transfer your assets and change the title or provide beneficiary designation, the trust cannot control any asset.

When preparing to get your affair in order, you can save yourself – and your beneficiaries – time and money by working with an experienced estate planning attorney. Attorney’s know state and federal laws, they can help with preparation, and even more importantly, they can help with legal proceedings once the time has come for beneficiaries to accept the assets in the living trust. They can also best advise on how to properly fund a trust.

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