Your trust must be properly funded to be effective. For assets to be controlled by a trust, they must be formally titled in the name of the trust. Assets not properly funded into the trust remain property of an individual person and are subject to probate. A trust that is not properly funded fails to meet key objectives of asset management during the life and after the death of the grantor as well as probate avoidance.
There are many reasons people base their estate plan on a revocable living trust. Unlike a will-based plan, a funded trust bypasses the time-consuming, expensive and public process of court-administered probate. Trusts remain private and are effective during and after your life, and you retain full control of the assets that are properly funded, or titled, in the name of your trust. The successor trustee you choose acts as a fiduciary and follows the terms of your trust upon your incapacity or death. Certain assets, however, cannot or should not be funded into a trust.
The benefits of trusts to individuals and families are numerous. Besides maintaining privacy and avoiding probate, trusts are useful in planning and managing assets during incapacity and for minor and special-needs children, blended families and future generations. Trusts are flexible, enabling you to freely buy, sell, add or remove assets. Wills, which require probate administration, do not take effect until death and require witnessed and notarized amendments to reflect any changes in assets during your lifetime.
The contents of your house are personal assets, separate from the actual real estate, and are subject to probate. Your personal effects – household goods, jewelry, furniture, artwork, books, collectibles as well as livestock, some vehicles, firearms
and other items – don’t have titles, so the items cannot be individually retitled. A Declaration of Intent / Bill of Sale / Assignment of Household Property (document name varies by state) is used to transfer assets into the name of your trust.
Some states, however, do allow for transfer-on-death designations (ToD) for vehicle titles.
Real estate is transferred from your individual name to your trust by signing and recording a deed in the county where the property is located. You may also need to refile property tax exemptions, such as a homestead exemption. Also, check with
your lender and homeowner’s association regarding their approval of the transfer. The taxes, fees and other costs associated with the transfer vary depending on the state.
You will need to visit your bank and sign new signature cards to retitle your accounts into the trust’s name. Banks also require a notarized copy of your certificate of trust or trust abstract, which is a summary of the trust provisions, for your
application. However, not all banks and credit unions allow checking, savings and money market accounts to be titled in the name of your trust. In that situation, you can place a pay-on-death (PoD) designation on accounts to pay the funds
into your trust outside of probate. Your successor trustee would then deposit those funds into a new account (potentially at a different bank) in the name of your trust after your passing.
Assets owned by your business (an LLC or corporation) are not transferred into the name of your trust. Transferring assets from a business entity to a trust would cause the assets to lose the liability protection you created the entity to provide.
Also, trust ownership can violate a professional business’ licensing requirements.
A membership interest in an LLC or stock in a corporation is a probate asset. The transfer process into a trust is different for the two entity types. An LLC membership interest can be funded into your trust by amending the operating agreement
to name the trust as the member. In some circumstances, an LLC interest can also be assigned to a trust. For a corporation, the trust needs to be named as the shareholder. The shares in your individual name need to be voided and new shares
issued in the name of the trust. The corporation’s stock ledger also needs to be updated to reflect the change in ownership.
Brokerage accounts are usually not retitled into your trust because they contain accounts for both retirement and non-retirement funds. If the account contains only non-retirement account funds, it can be retitled into the name of a trust. Even
if not retitled into a trust, your brokerage account can still avoid probate by adding a transfer-on-death (ToD) designation. However, not all assets in a brokerage account, such as gold, can be transferred using a ToD designation. Note, brokers
have different rules regarding whether an account can be titled into the name of a trust.
Individual stocks held outside of a brokerage account are transferred into the name of your trust by contacting the transfer agent and updating the corporation’s records. Original stock certificates can be exchanged for new certificates issued
with the trust named as owner. (Most transfer agents will list stock ownership in electronic form and not issue paper certificates.) Another option is to create a brokerage account in the name of the trust in which your stock certificates
are deposited and converted to electronic form.
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Individual bonds can sometimes by titled into the name of your trust, depending on the issuer. U.S. savings bonds are retitled by submitting a form to the Treasury Department (for paper bonds) or submitting a request at TreasuryDirect.gov (for
A vehicle that is leased or financed cannot be transferred into the name of your trust. A paid-off vehicle can be transferred into the name of your trust, but this strategy is usually reserved for collectible or other especially valuable vehicles.
The simplest way to avoid probate of a vehicle is to place a transfer-on-death designation on the title or use an ownership transfer form at the DMV. Vehicles that do not have titles, such as farm or construction equipment, are funded
along with your other untitled property and household goods via a Declaration of Intent or similar document.
Tax-qualified retirement accounts, such as 401(k)s and IRAs, are not funded into trusts. Transferring a retirement account to your trust would be considered a withdrawal of the assets and a taxable event, causing the entire account balance to
count as taxable income. Retirement accounts avoid probate when the owner properly completes the account’s beneficiary designation form. In appropriate circumstances, a trust, usually not a revocable living trust, can be named as a retirement
Life insurance is not funded into your trust. Life insurance avoids probate when the account’s beneficiary designation form is properly completed. In limited circumstances, like when beneficiaries are minors, a trust may be named as the beneficiary
of a life insurance policy.
Annuities, except in very special circumstances, are also not titled in the name of your trust. Annuities avoid probate when you properly complete the account’s beneficiary designation form. In some situations, a non-retirement annuity’s beneficiary
can be a trust.
Digital assets and social media accounts usually cannot be funded into a trust, since they are not an asset you own. Most digital assets are licenses that allow you to use or access services like iTunes and Amazon’s Kindle. At your passing, the