Have You Properly Funded Your Revocable Trust?
A revocable trust can be an essential estate planning tool. It allows you to protect and manage your assets while you are alive but provides for their management and distribution to your beneficiaries should you become unable to do so or pass away. A revocable trust allows you to make changes to it and even revoke it entirely at any point during your lifetime.
How a Revocable Trust Works
A trust is a separate legal entity that can own assets. Once you have funded your trust, the trust then owns these assets.
Assets in the trust will be managed according to its terms by a trustee, which can be you and other co-trustees. If you become incapacitated or die, a co-trustee can continue to manage the assets in the trust or distribute them to your beneficiaries. Although assets in a revocable trust are not protected from estate taxes, they are protected from the probate process when you die.
What Does “Funding a Trust” Mean?
Creating a revocable trust offers important protection for your assets, but those assets cannot be protected until the trust is in possession of them. “Funding a trust” refers to the necessary actions and creation of documents that officially transfer the assets to the trust. Different assets require different methods of transferring them into the trust’s name.
To transfer real estate to the trust, a grant deed will need to be executed to retitle the property in the trust’s name, this grant deed must then be filed in Orange County, CA or the county where the property is located. After the transfer, the trust will then be responsible for all the costs associated with that real estate.
Titled and Untitled Personal Property
Titled property such as cars and boats will require a new title showing the trust as the owner. If there is financing on these assets, you must first get the approval of the lender before you can transfer title. For other personal property that is not titled, they may be transferred to the trust through an executed assignment of ownership.
While some business interests can be placed in a trust, it is important to understand if there is anything in the ownership documents that prevent it. It is advisable to consult with your business attorney to understand how this can be accomplished, given your specific business and how it is set up.
Changing bank accounts from your name to the trust’s name should be relatively straightforward. Some institutions will want a Certification Letter naming the institution and may want to see a copy of the completed trust. If there are existing beneficiaries on the bank account, they will need to be removed before transferring into the trust.
Transferring stock to the trust may require that the title of the stock certificates themselves be changed. If held through a brokerage, you may only need to change the title on the account itself. If shares are held directly in your name, they may be changed over to you as a trustee. Your broker or their legal department will advise you on how shares must be changed depending on how you hold them and your account.
While your life insurance will already have designated beneficiaries with benefits distributed to them upon your death, these benefits will not be protected by the trust. You may want to consider making your life insurance a beneficiary of your trust and proceeds can then be disbursed to your beneficiaries through the trust by your trustee.
In the case of IRAs and 401K Plans, a trust should not be named as a primary beneficiary since it is not a natural person. The beneficiaries of these accounts will have their own tax deferment options. While there is a way that a trust can mirror what is available to individuals, it can complicate matters for the trustee and is only beneficial if the named beneficiaries will need the trustee to manage this money for them.
Getting the Assistance of an Orange County, CA Estate Planning Attorney
Once a trust is funded, it is important to periodically revisit it so it can be kept updated with any new assets, beneficiaries, a change in trustees, or other terms. As its name suggests, a revocable trust can be completely revoked at any time before your death.
If you have questions about your estate planning, the advantages of a revocable trust, or questions about how to fund yours, we would be happy to help. At The Law Offices of Roshni T. Desai, we have helped families throughout Orange County, CA protect their assets and their loved ones. Call us at (714) 694-1200 or contact us through our online contact form to schedule a confidential consultation.