Five Steps to Fund Your Living Trust
Five Steps to Fund Your Living Trust – We always are encouraging all of our clients, friends and family to create a Living Trust. This is so that their families can avoid the Probate process. Unfortunately, there is always one critical step that occasionally is left out and thus leaving the family vulnerable to Probate. It is not enough to just simply having a Trust; Living Trusts require that you fund your assets which basically means you need to move your assets into the Trust. Without taking this very important action, your family will likely end up facing Probate in court. Below are the top five steps to funding your Living Trust:
Five Steps to Fund Your Living Trust – Five Asset Categories that can fund a Trust:
- Transfer Real Property
- Transfer Titled Personal Property
- Fund Untitled Personal Property
- Bank and brokerage accounts
- Business Interest
(1) Transferring real property to a trust requires a deed, typically a quit claim deed.
Real property is a building or a piece of land, designated by a Deed. The deed needs to be executed as required by law in the state where the property is located. You will need the required witnesses, notary provision, and recording with the appropriate agency, etc. You may need to file a copy of the trust document, or a summary of the trust called a memorandum of trust or certificate of trust. This summary is preferable because it is typically one or two pages and avoids having the details of the trust document in the public record. This must be registered with the county for the Trust to be funded. CA Legal Legal Docs prepares Trust Transfer Deed for our clients who are funding their Trusts.
If your property is subject to a mortgage, or a homeowners association, you may need to obtain the permission of the lender and the association.
Caution: A real property transfer normally results in a transfer tax and other fees. Some states exempt the transfer to a living trust, some charge a nominal fee, and others consider it a sale at full market value and assess the full taxes and fees. For a personal residence, some states give a homestead exemption (resulting in lower annual property taxes), and some limit the annual amount of property tax increase. You want to be sure that a transfer won’t incur substantial fees, or eliminate such homestead or tax increase protections.
(2) Transferring Titled Personal Property (which includes cars, boats, trucks, ATVs, RVs, airplanes, motorcycles, trailers).
If personal property has a title document, it will be necessary to obtain a new title showing the living trust as the owner. In some states you can designate your trust as a beneficiary on a motor vehicle title, which keeps the vehicle in your name, but automatically transfers it to the trust upon death. Otherwise, these items can be placed in a Trust through a Deed of gift or a bill of sale. The Deed of gift or bill of sale is necessary to “fund” the trust with these items. Remember, items that are HIGH in value will force you to go through Probate if they are not properly placed in the Trust.
Caution: Find out if transferring ownership will result in substantial taxes or fees. If the vehicle is subject to a lien, get the approval of the lender. Also, ask your insurer if a transfer will affect your premiums.
(3) Transferring Untitled Personal Property (examples are books, collectibles, dolls, antiques, furniture, tools, records, cds).
Personal property without a title document, can be transferred with an assignment of ownership document, which must be signed and dated. Otherwise, these items can be placed in a Trust through a Deed of gift or a bill of sale. The Deed of gift or bill of sale is necessary to “fund” the trust with these items. Remember, items that are HIGH in value will force you to go through Probate if they are not properly placed in the Trust.
It is important to adequately describe the property, so that there is no doubt about its identity.
(4) Transferring Bank and Brokerage accounts.
Creating multiparty bank accounts can seem like a convenient solution for those caring for ailing family members, but it can create family conflict. If that ailing family member dies, all of the money in that account defaults to the person whose name was also on the account. This presents an issue when there are other siblings who expected to inherit some of that money and can ultimately land the estate in Probate court. Putting the accounts in the name of the Trust will ensure that funds can be transferred easily to all parties specified by the documents of your Trust.
Your bank can tell you how savings, checking, and money market accounts can be titled in your trust. It may require closing the account, and opening a new account in the name of the trust. Your broker can advise you how to retitle a brokerage account. Or get stock and bond certificates reissued (a complex process). A nonqualified annuity can be retitled, or the trust can be made a beneficiary.
We here at CA Legal Docs as part of our Estate Administration Package we prepare a letter/s to go to the Bank. They include instructions on your request to rename the account in the name of the Trust.
You can do this with a Certificate of Deposit (CD) but, verify your bank won’t consider this an early withdrawal. Otherwise, they can assess penalties. You can wait for the CD to mature, then open a new CD for the trust.
Caution: For brokerage accounts that are qualified retirement accounts, see the section below on Retirement Accounts.
(5) Transferring Business Interest.
With there being so many distinctions for transferring different types of business assets, it can be easy to want to put off transferring them to your Trust. However, it is extremely beneficial to take care of it now, before it is too late. Interests in partnerships and LLCs, and shares in a corporation, can be retitled in the name of the trust. Check the partnership agreement, LLC operating agreement, or articles of incorporation, for transfer restrictions or procedures. When you are busy running a company, it’s difficult to find time to contemplate business succession and estate planning.
That is why CA Legal Docs wants to make the process easier for you. So that you can have the added weight of this responsibility off your shoulders, once and for all. Check out our website, to find the solutions which work best for you as far as Estate Planning, to make sure that all of your affairs are in order long before you need to be concerned about them.
Lastly, if there are items that have nominal monetary value but significant sentimental value. These should be identified in a Trust along with their respective recipients. The more details that you provide to your family, the easier the process of settling your estate will be.
A LIVING TRUST is an important part of estate planning. Without it, your family and/or friend/s will be headed to Probate court. A Trust also need to be updated when you have important life events. These events can include: birth, deaths, purchases of property and any other assets that have significant value. Don’t forget Five Steps to Fund Your Living Trust! Schedule an appointment today!
