You’ve establish a revocable living trust as part of your estate planning for incapacity and to avoid probate. You might think your estate plan is done once you’ve signed the trust agreement, but there’s still work to do. After signing your trust, you’ll need to “fund” it with your assets. There are three general procedures that should be followed in order to properly fund a revocable trust, depending on the type of property: change of title/ownership, assignment of ownership rights, or change of beneficiary.
Here’s a list of what types of assets can be retitled into the name of your trust, followed by a list of assets that should not be retitled:
- Cash accounts: checking, savings, money market funds, CDs and treasury bonds. Consider having the CDs “associated” with a cash account opened in the name of a trust so that the bank does not consider it an early withdrawal subject to a penalty. Regarding treasury bonds, it is necessary to complete the appropriate formon the Treasury Direct website and mail it with the bonds to Parkersburg, WV to receive bonds issued in the name of the trust. As long as the original owner(s) is/are the beneficiaries of the trust, the bonds will be reissued at the original interest rate.
- Investment and brokerage accounts (but not retirement accounts as explained later).
- Nonqualified annuities.
- Stocks and bonds held in certificate form. The original certificate must be returned to the stock transfer agent in exchange for a new certificate. This requires a “Medallion Signature Guarantee” on the stock transfer form, available at most banks. The original certificates should be sent registered mail, insured for 2% of the current value of the stock. An alternative is to open a brokerage account in the name of the trust, and deposit the certificated stocks.
- Tangible personal property, including jewelry, clothing, books, personal papers, personal computers, furniture and furnishings, antiques, collectibles, art work, firearms; pets, horses and cattle; tools, photos, etc. Generally an “Assignment of Personal Property” is signed at the same time as the revocable trust, and that conveys the personal property into the name of the trust.
- Business interests, including shares of stock in a closely held corporation, partnership interests and membership interests in limited liability companies. Check shareholders’ agreements, partnership agreements, or operating agreements for restrictions on transfers and for specific procedures to be followed to retitle shares or interests into the name of the trust.
- Life insurance. Not everyone agrees that a life insurance policy should be owned by the trust. Advocates say that if you become mentally incapacitated, your successor trustee will have the authority to deal with the policy, including borrowing against the cash value to pay for your care. Some states only offer protection for a policy owned by an individual resident of the state, and since a trust is not considered to be a person, the cash value will become unprotected. The other way to handle life insurance is to ensure that the General Durable Power of Attorney gives your agent the authority to manage life insurance.
- Money owed to you, including secured and unsecured personal loans. If you hold a mortgage on someone else’s real estate, you will need to sign an “Assignment of Deed of Trust” or similar document, and record it in the same land records where the original Deed of Trust is recorded.
- Royalties, copyrights, trademarks and patents. The US Copyright Office and the Patent and Trademark Office have information on assigning these interests into a trust.
- Oil, gas and mineral rights. Depending on the type of ownership interest, and depending on how state law regards the rights, it may require an assignment into the trust or a new deed.
- Real estate. Transferring real estate into a revocable trust requires recording a new deed in the county where the real estate is located. In some states, a time share is considered to be real property requiring a new deed to transfer ownership to the trust.
And what should not be put into the name of the trust:
- Qualified retirement accounts, including 401(k), 403(b), 457(b), IRA and qualified annuities should not be retitled into the name of a revocable trust because the transfer will be treated as a complete withdrawal of the funds and all of the value will be subject to income tax in the year of the transfer. Instead, complete a new beneficiary designation form to name the trust as the primary or contingent beneficiary. Check with your estate planning attorney to determine whether the trust should be primary or contingent beneficiary depending on your situation.
- Health Savings Accounts and Medical Savings Accounts. As with retirement accounts, the trust should be named as the primary or secondary beneficiary of the account.
- UTMA and UGMA accounts. These accounts, established for the benefit of a minor child, are deemed to be owned by the child, and the person who opened the account is the custodian. Instead of changing the owner of the account, a successor custodian should be designated to avoid probate of the account if the primary custodian dies before the minor becomes an adult.
- Life insurance. As noted earlier, the trust can become the owner of the policy without negative income tax consequences, but it is important to determine if state law treats a revocable trust as an individual for creditor protection purposes. It is possibly easier to add the trust as the contingent beneficiary.
- Motor vehicles such as cars, trucks, boats, motorcycles and aircraft. While motor vehicles can be retitled into the name of a revocable trust, some states treat the transfer as a sale and charge transfer tax to issue a new title in the name of the trust. In some states probate isn’t necessary to transfer ownership of a motor vehicle after the owner dies, making it unnecessary to transfer the vehicle to the trust. In case of an accident, the designation of a “trustee” as owner of the vehicle may create an impression of great wealth, resulting in a demand for greater compensation for injuries or damage.
