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.
Real property
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.
Bank accounts
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.
Securities
Trusts can manage interest-bearing assets, including securities. Trusts can own securities accounts, or they can be named as beneficiaries.
Insurance
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
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.
