A trust-based estate plan can help California residents and their loved ones alleviate the pressures of probate. However, simply executing a revocable living trust provides inadequate protection. Before you can rely on a trust to shield your assets from uncertainty, you must fund it.
Why You Need to Fund a Revocable Living Trust
A trust is a special legal entity that can receive, title, and manage assets. In estate planning, trusts are often used to avoid the need for probate—the intensive, court-administered process of paying a deceased person’s debts and distributing their assets.
California law acknowledges several different types of trusts, including:
- Revocable living trusts
- Irrevocable trusts
- Special needs trusts
- Education trusts
Each type of trust can be used for different purposes. However, trusts—no matter the reason for their formation—are only effective if they are funded. Since any non-trust assets could still be subject to probate, the trust only shields assets in its possession.
How to Fund a Living Trust
For most purposes, funding a trust simply means listing and re-titling assets in its name. Once the trust establishes ownership of these new properties, they become trust assets and are customarily exempted from probate. Funding a revocable living trust is relatively straightforward since the trustor typically retains full control over the trust’s assets and can even serve as trustee.
Revocable living trusts are often used to transfer real properties, including family homes, between generations. Under most circumstances, transferring a property to a trust requires a deed (usually a quit claim deed).
Titled personal property
A trust can also receive titled personal property, which could include a car, truck, motorcycle, boat, or recreational airplane. While re-titling most personal property is relatively straightforward, your assets could be subject to taxes and other fees.
Any bank accounts the trustor wishes to use to fund their trust must be re-titled. Some banks require that the original account be closed and a new account be opened in the trust’s name.
Trusts can manage interest-bearing assets, including securities. Trusts can own securities accounts, or they can be named as beneficiaries.
A trust can also be the owner or beneficiary of a life insurance policy. Naming the trust as the policy’s owner allows the successor trustee to manage the policy if you are ever injured or mentally incapacitated.
Retirement savings accounts cannot usually be transferred or re-titled to a trust. However, most retirement accounts—such as an IRA, 401(k), or medical savings account—can be named a trust beneficiary.
Transferring Recently Acquired Property to a Trust
Transferring recently acquired property to an established trust is, in most cases, a fairly straightforward task. However, keep in mind the following:
- If you purchase a new home or other real property, you could purchase it in the name of the trust to avoid formal transactions and transfer fees.
- If you open a new bank account that is intended solely to fund the trust, you can open it in the trust’s name.
- If you have any other accounts, securities, or life insurance policies, you should review their listed beneficiaries and update them accordingly.
While trusts can easily acquire new property, they cannot receive or manage most liabilities, including personal debt or business debt.
A periodic review of your trust funds and other estate planning documents is critical. You should always review your estate plan after major life events, especially after marriage, divorce, or the birth of a new child.
Revocable living trusts offer asset protection, but establishing, funding, and managing a trust can be tricky. Even with a strong plan, anyone can be easily overwhelmed by paperwork and filing requirements.
Do You Need to Speak With a Trust and Estate Administration Attorney?
If you need to speak with an experienced California trust and estate administration lawyer please contact us online or call us directly at 800.756.5596 to first register for one of our free, informative seminars. Your attendance will qualify you for a special discount for our estate planning services should you decide to make a free appointment at the conclusion of the seminar and choose to proceed with us. We proudly serve clients throughout California with offices in Torrance, Newport Beach, Orange, Woodland Hills, and Pasadena.