How Do I Put Property, Money, and Other Assets in a Living Trust?
A living trust is less expensive to create and less time-consuming to manage than many other types of trust. Its primary benefit is that trust assets need not go through the time-consuming probate process in order to be transferred to beneficiaries.
A trust has a number of other benefits as well:
- After death, it can reduce or eliminate state and federal estate taxes.
- If the decedent owned real estate in more than one state, it can all be placed into the trust to avoid ancillary probate in multiple states.
- It requires only one document to provide instruction for the distribution of all types of assets.
- It can be professionally managed for maximum income-earning potential.
- The trustor can specify who is a beneficiary, when they receive their inheritance, and even for what purposes. Assets held in the trust can sometimes be protected from the beneficiary's creditors, divorcing spouses, and even their own irresponsible spending.
- It provides privacy for heirs, which the probate process does not.
Most trusts of this kind are set up as revocable living trusts during the trust funder's lifetime. This type of trust does not act as a tax shelter and does not provide asset protection from creditors. However, the trust funder (called a grantor) is usually the trustee and retains control over the assets. The grantor can designate beneficiaries, can change the terms of the trust, and can even close the trust at any time.
Once the trust funder dies, the trust converts to an irrevocable trust, and those assets in the trust are no longer taxable.
Drafting a living trust document is only the first step. For the trust to be effective in distributing assets after death, money and other assets must first be transferred into the trust. This article provides basic instructions on how to fund a living trust with different types of assets. The method you use depends on the type of real estate, personal property, investment, business interest, or other assets you'd like to transfer. Methods include:
- Title transfer
- Assignment of ownership
- Opening new accounts
- Assignment of rights
- Incorporating a pour-over will
- Naming the trust as a beneficiary
Funding a Revocable Living Trust Now
You may or may not incur fees and taxes with the transfer of real estate into a living trust. It depends upon the laws in your state. Some states charge a nominal fee, while some states consider the transfer of a property into a living trust to be the same as a sale at full market value and assess significant taxes. Consult a tax advisor before you begin the process of transferring real estate so you understand the financial consequences.
Transferring property typically requires that the grantor file a quitclaim deed with their county clerk, giving up the individual's claim to the property and transferring it to the trust. You may need to file a copy of the trust document or a Memorandum of Trust or a Certificate of Trust with the quitclaim deed.
If the property is part of an HOA, you may need permission from the association. If there is a mortgage on the property, you may need the permission of the lender.
Title Transfer or Retitling
Vehicle ownership is held with a title document. There may be two options for transferring title (depending on the laws of your state):
- You may be able to retitle the vehicle to the living trust, listing it as the owner.
- You may be able to designate the trust as a beneficiary of the title after death.
Transferring vehicle title could result in substantial taxes and fees. It could raise your insurance premiums. It could require the approval of a lender if there is a lien on the vehicle. You may wish to talk to your insurer, your lender, and a tax advisor before you begin the process.
A brokerage account, investment account, or nonqualified annuity can be retitled. Ask your broker for advice on how to do this. Stocks and bond certificates can be reissued in the name of the trust, though this is complex.
Business partnership interests or limited liability company (LLC), and shares in a corporation can be retitled in the name of the trust. Check the partnership agreement or operating agreement or articles of incorporation for instructions on how to do so and any transfer restrictions.
Assignment of Property Interest
Most property does not come with proof of ownership. In some instances, you can transfer ownership of personal property like art, collectibles, antiques, jewelry, etc., with an Assignment of Property Interest document.
There is no standard form. You will need to create the form stating exactly what you are transferring to the (named) trustee of the (named) trust. Sign and date the form. You will need to sign it once as the person assigning the properties to the living trust and once as the trustee of the trust. Include the word “trustee" after that signature. You may wish to have the form notarized.
In addition to listing property on an Assignment of Property Interest form, you should also list all of this property on a page of the trust document called a Schedule A or Exhibit A. Describe property in sufficient detail that it will be clearly understood by the successor trustee upon the death of the grantor.
In addition to personal property, royalties, copyrights, patents, and trademarks can be assigned to a living trust in this manner. You may want to include identification numbers where relevant. Notify the royalty company of the transfer of ownership.
Transfer of Ownership
A living trust can be named as the owner of a life insurance policy, or as a beneficiary. However, in some states, the cash value of a life insurance policy is only protected from creditors if the policy is owned by a person. Transferring ownership of the policy to the trust could cause that protection to be lost. Ask your insurance agent.
Open New Accounts
For bank accounts — savings accounts, checking accounts, money market accounts, CDs — ask your bank how to proceed. You may be told to close the account and reopen a new account in the name of the trust. It may be advisable to wait for any CDs to mature. Then the cash in the CD can be used to open a new CD in the trust's account.
Assignment of Rights
An Assignment of Rights is a legal document that can be used to make your trust the recipient of payments from oil, gas, and mineral rights you have for a property you do not own. If you own the property, it may be easier to change the deed. An Assignment of Rights document can also direct payments for outstanding loans owed to the grantor into the trust fund.
Funding an Irrevocable Living Trust After Death
The most important tool to transfer remaining property into a living trust upon the death of the trustor is by setting up a pour-over will before death. Any assets that aren't distributed to an heir by title or deed, and haven't yet been transferred into the living trust, will "pour over" into the trust.
For some assets, it's disadvantageous to put them into a trust. For example:
- Some car insurance companies will charge higher premiums for trust-owned cars.
- If a car, truck, boat, etc., is involved in an accident and the owner is found liable for damages above the insurance policy limit, creditors could attach a judgment to the trust.
- Some financial institutions may not want to finance or refinance a trust-owned property, or may not consent to the transfer of a mortgaged property into a trust.
Some assets may have been unintentionally left out of a will while other assets may be unknown at the time of death. For example, the deceased may be owed money or may have inherited some property of which they are not aware. These assets transfer with a pour-over will.
The downside to this approach is that a will must go through the probate process which takes time and leaves that part of the estate vulnerable to estate taxes.
The following types of assets should list the trust as the primary or secondary named beneficiary of funds. This must be done while the grantor is alive and payouts will be made to the trust after death. Talk to your tax advisor or estate planning attorney to determine whether a primary or secondary designation is most appropriate.
- Retirement accounts: The deceased will no longer be using the money in their IRA, 401(k), 403(b), pension plans, and qualified annuities
- Health Savings Accounts (HSA) and Medical Savings Accounts (MSA)
- Life insurance policies
- As noted above, a car title can list the trust as a beneficiary
Interested in Using a Living Trust as Part of Your Estate Plan? Talk to an Attorney
Whether you want help setting up a living trust or you have questions about how the transfer of certain property would work in your specific situation, get answers to your legal questions by contacting a local estate planning attorney today.
Can I Solve This on My Own or Do I Need an Attorney?
- DIY is possible in some simple cases
- An attorney is on your side during complicated legal decisions
- Cases with trusts and beneficiaries are rarely cut and dry
- Get tailored advice and ask your legal questions
- Many attorneys offer free consultations