Having a fully funded living trust is essential to taking advantage of its benefits.  An unfunded or partially funded Revocable Living Trust does not avoid probate. “Funding” your trust really means doing one of two things (1) transferring title and ownership of your assets from you to your living trust; or (2) changing your beneficiary from an individual or group of individuals to your living trust. It sounds scary, I know.

But as long as the trust is a revocable living trust it is not scary at all and will not change anything about how you live your life on a day-to-day basis. All that will change is that your check book may say “Trustee” next to your name. Your property tax statements for your home will be addressed to “[your name], trustee of the [your trust’s name].” For example, title to my assets may be held as follows: “James A. Long, trustee of the Long Family Trust.”

Most estate planners will offer to do some basic trust funding for you. In fact, many estate plan packages include a new quitclaim deed to transfer title to your house. Some firms, mine included, will have a “funding package” where you can hire the attorney to transfer title to all your assets. If you are shopping for an estate planning lawyer, make sure that he or she will agree to at least draft a new deed for your primary residence. If not, don’t waste your time with that estate planner.

Exactly how you put each asset into your trust really depend on the type of asset. Generally, to transfer assets to your trust, you must execute new documents of title, deeds to real property, and signature cards for your bank accounts, as well as change of beneficiary forms for pension plans, individual retirement plans, and life insurance. Your financial advisor, accountant, broker, or life insurance agent may need to help you make ownership or beneficiary changes. This post is intended to give you general knowledge of how to fund your trust, but does not comprehensively address every type of transfer.

Caution: some assets (like retirement accounts) should not be owned by your trust except from specialized circumstances. Please consult a lawyer before blindly putting stuff into your trust because doing so may have dire tax consequences.

Funding Documents

Your living trust will be funded using one or more documents. This portion of the post will orient you with the basic types of funding documents you may need. Some of these documents may already be included in your existing estate plan. If you do not have an estate plan, you may receive these documents form an attorney.

Affidavit of Trust: typically when you are changing title to name your trust as owner, or naming your trust as the beneficiary of some asset, the finical instruction will want to see a copy of your trust. Instead of handing over an entire copy of the trust, you can give them an “Affidavit of Trust” which contains all of the relevant information they need, but omits the personal information you car about, like family names and dates of birth, who your beneficiaries are, and where your property goes upon your death. It is a way to keep your trust terms private.

Assignment of Personal Property: personal property is all of the non-real, physical property that you own, e.g., your clothes, cars, furniture, household goods, jewelry, art, collections, etc. An Assignment of Personal Property transfers ownership of all of your personal property into your living trust.

Certification of Trust: like an Affidavit of Trust, California allows you to use a document called a “Certification of Trust” which does the same thing as an affidavit of trust. It provides relevant information about the trust, like the name, date, and trustees of the trust, but omit the kind of information you would likely prefer to be private. So, when funding your trust, if someone at the bank or financial instruction says “I need to see the trust” you can give them a Certification of Trust, instead.

Quitclaim Deed: Real Property is always transferred by a deed of some kind or another. Usually, a Quitclaim Deed is used to transfer title from you to your trust, though sometimes a “Grant Deed” will be used.

Signature Cards: when you want to transfer ownership of your bank accounts from you to your Trust, you will need to sign new “Signature Cards” at the bank.

Cash Accounts

You should sign new signature and ownership cards to retitle any sizeable bank accounts or cash equivalents, including treasury bills, money market accounts, and certificates of deposit, to name yourself as Trustee of those accounts. Before you retitle your certificates of deposit, consult with a bank officer to make sure that the institution does not consider the change in account name to be an early withdrawal that incurs a penalty. Generally, this should not be a problem because your tax identification number for the account (usually your SSN) will remain the same.

The best practice is to open a trust account with a third party trustee named,  although the more informal method of creating a joint account with a third party signatory “in trust for” can also be used. Now, most financial institutions do not require that the name of your trust be printed on your checks. So, after transfer you will carry on just as before and your check book will look the same as it ever did.

It is a good idea to keep a personal checking account out of the trust from which you pay all your bills, but you do not need to if you do not want to.

Investment Accounts

If you hold publicly traded stocks and bonds that are already in brokerage or investment accounts, contact your brokers or custodians and direct them to change the title of the accounts to the name of your trust. The procedure for doing so is the same as the procedure for retitling cash accounts explained above. You may have to complete new account applications and present a copy of your Affidavit or Certification of Trust in order to change the title.  Title to the accounts should be in the trust name.

Stocks and Bonds Not Held in Investment Accounts

If you possess original stock or bond certificates, there are two ways to transfer ownership:

1. You can open a brokerage or investment account in the name of your Living Trust and deposit your original certificates in the account. (You may later have your broker deliver the certificates to you made out in the name of the trust if you wish.)  Your future account statements, titled in the name of your Living Trust, will prove your ownership of the transferred stock or bonds.
2. Work directly with the transfer agent for the stock or bond and direct the agent to reissue your stock with your Revocable Living Trust named as the new owner.

Stock Options

Transferring or assigning stock options requires a careful analysis of the tax and legal issues. You should ask your Certified Public Accountant (CPA) and your stock plan administrator about your choices in assigning your interests to your Living Trust.

Personal Property

Tangible personal property refers to such items as household furnishings, appliances and fixtures, works of art, motor vehicles, pictures, collectibles, personal wearing apparel and jewelry, books, sporting goods, and hobby paraphernalia. You can transfer your personal property by executing an “Assignment of Personal Property” or a “General Assignment.”

Your personal vehicles can be titled in the name of your Living Trust, but most people prefer to leave their vehicles outside their trust for several reasons.  One, if you are in a car accident, the fact you have a Living Trust could cause the other parties to the accident (and their attorneys) to assume they have deep pockets and encourage a lawsuit. Second, your heirs can usually transfer vehicles without formal probate proceedings by filling out forms at the DMV after you die. If you decide to title your vehicle in the name of your trust, you need to consult your casualty insurance agent to make certain the transfer will not result in a business rating on your insurance policy that would increase your premiums.

Retirement Plans

You should never transfer the ownership of a qualified retirement or pension plan or individual retirement account to your Living Trust.  Instead, if you have pre-retirement death benefits under such a plan, you should choose from among your spouse, children, or partner as primary and contingent beneficiaries. Making the proper beneficiary designations for retirement plans involve many complex tax and individual family issues. Therefore, consult with an estate planning lawyer or your tac professional before you make any changes.

Qualified Tuition Plans (529 Plans)

Transferring a 529 plan to your Revocable Living Trust often makes sense, but your trust must contain specific language enabling the Trustee to manage the account. You can do this by contacting the brokerage holding the 529 Plan.

Life Insurance Policies and Annuities

You may want to tax-proof your major life insurance policies by creating one or more irrevocable life insurance trusts (discussed in a separate post).  In any event, you will probably want some (or all) policy proceeds paid directly to your Living Trust.  If you decide to name your Living Trust as the beneficiary of a life insurance policy, here are several points you should consider.

1. Your policy beneficiary designation, not your Will and Living Trust, controls the disposition of the policy benefits. This means that if you have a living trust that names your children as the beneficiaries of your estate, but your life insurance policy names your ex-spouse as the beneficiary, the life insurance company and the court will not care about who you named as the beneficiary of your trust. Instead, all of the life insurance money will go to your ex-spouse. So, check and update your beneficiary designation often.
2. Generally, you should designate your Living Trust as the beneficiary of your life insurance policies so the policy proceeds will be governed by the terms of the Living Trust. This has several advantages. Frist, you can build asset protections into your Living Trust protecting the life insurance proceeds from creditors, divorce, or substance abuse. Second, your Living Trust can control how and when your beneficiaries receive the life insurance proceeds.

To change your beneficiary designation, contact your insurance agent and tell him or her that you want your Living Trust as the beneficiary. Your agent will make the change for you or provide you the beneficiary designation form for you to complete.

***If you name your Living Trust as the primary beneficiary, you should also name your spouse, partner, or children as the secondary beneficiary.

Each insurance company will have its own preferred format for designating your Revocable Living Trust as the beneficiary. When the change is made, your insurance company should send you a letter confirming the change of beneficiaries in your insurance policy or annuity records.

Mortgage, Notes, and Other Receivables

If you have loaned money to anyone, you should assign your interest as lender to your Living Trust by a written document and notify your debtor of the assignment.

Partnership Interest

If there are no restrictions in your general partnership agreement, your interest in the general partnership should be transferred through a written assignment of interest signed by you and acknowledged by your partners. Transfer of an interest in a limited partnership is accomplished in the same way as the transfer of a general partnership interest. You should consult an attorney to help you with this since some of the language needed may be complex and you may be unaware of formalities for transferring into your Living Trust imposed by your existing partnership agreement.

Business Ownership Interests

If your business is a corporation, you will have to cancel shares held in your name and reissue them in your name as Trustee of your Revocable Living Trust.  If your business is a limited liability company, you can have the membership certificated canceled and reissued or an attorney can draft assignment documents for you. If you own a sole proprietorship[1] your business interest can be transferred to your Living Trust with a written assignment of interest.

Oil, Gas, and Mineral Interests

The method of transferring interests in oil, minerals, and gas depends on whether you own or lease the interests. Generally, if you own the interests, you should record a deed that titles your interests to your Living Trust. If your interest is a lease, you should assign your rights as a lessee to your Living Trust by a written assignment. Again, it is best to use an attorney to accomplish this since there may be restrictions in the lease agreement or ownership documents that you may be unaware of.

Real Property in California

Transferring your real property to your trust will require attention to ownership and tax issues based on the nature of the current title to the property. Ultimately, the transfer will require preparing, executing, and recording new deeds for each property. Additionally, in California you will also need to prepare a “Preliminary Change of Ownership Report” which is a PDF form maintained by every County in the State. Since drafting a deed is a bit complicated and must be done exactly right, you should have an attorney transfer all real property interests.

Real Property in Other States

If you own real property in multiple states, you will need a deed to transfer the property, but you should consult an attorney in the state where the property is held to help you do that. Every state is going to have its own rules for transferring real property, and it is best to use a local attorney.

Real Property Owned in Another Country

If you own property outside the United States, there are special rules you need to follow, and also special provisions in your trust that you may need. In fact, depending on the circumstances of your estate, you may need a separate trust to hold the foreign assets. Consult with an experienced estate planning lawyer to help you.

Anticipated Inheritance, Gift, or Lawsuit Judgment

If you are the beneficiary of an estate of someone who has already died, or if you are a plaintiff in a lawsuit, you can assign your interest in the estate or lawsuit to your Living Trust in case you are disabled or die before receiving distributions or payments.

Unless you are unbundling your estate plan, every estate planning package at Atlantis Law always includes basic trust funding. We will give you new deeds for your home and a general assignment of personal property to get you started. We also offer more robust funding for your trust for an extra fee.

If you would like to start the process of starting your own estate plan, give us a call (951) 228-9979, or click this link to schedule a time for a team member to call you back.