Understanding Funding Your Living Trust

The first thing to remember about a trust is that it will only work for assets that have been placed into the trust. Any asset that you do not place in your trust may be subject to probate and may not pass according to your estate plan.

Probate is often time-consuming and expensive and is open to public scrutiny. For these reasons, many people engage in estate planning to enable their assets to bypass probate wherever possible.

What is Funding a Trust?

Funding a trust is the process of placing your assets into your trust. Think of your living trust as a safe that is waiting to receive your assets. It offers no protection from probate until your assets are actually placed inside the safe i.e. your living trust. When it comes to a trust, this means titling your assets away from your name and to the name of your trust.

After you place your assets into your trust, it is still business as usual. There is no change in property tax or income tax. If you place an asset that generates income into your living trust, that income is still your taxable income.

What Assets Should You Place Into Your Trust?

Many law firms provide trust funding as a service, but people often don’t want to incur the added expense. Funding a trust on your own may be OK for a small estate, where funding is all that needs to be done. However, if you own many assets in different states and financial institutions, then you should probably hire a professional to assist you with funding your trust.

Whether you go it alone or hire an attorney to assist you with funding your trust, the following assets should almost always be placed into your living trust:

Real Property

To transfer real estate into your trust, you may use a quitclaim deed or a warranty deed to transfer title away from your name and to the name of your trust. The deed must then be recorded with the county where the property is located.

Bank accounts

You should contact your banking institution to find out what they require in order for you to transfer your account into your trust. Often, the financial institutions will require a certificate of trust. This document, which you typically receive from the attorney who drafted your living trust, verifies that you have a trust, without disclosing the specific terms of the actual trust document.

Life Insurance

Unless your estate planning attorney recommends that you implement an Irrevocable Life Insurance trust, you should transfer ownership of any life insurance you own to your living trust and designate your trust as the beneficiary of the policy.

Other assets you should transfer into the name of your living trust include:

• Stocks, bonds, mutual funds, and bearer bonds;
• Brokerage accounts;
• Certificates of deposit;
• U.S. Savings bonds;
• Trust deeds and mortgages;
• Interest in closely held partnerships, corporations, and limited liability companies;
• Furniture and personal property; and
• Safe deposit boxes

Assets that You Do Not Need to Transfer into Your Trust

There are some assets that you do not need to place in your living trust, including:

Some Bank Accounts

There may be instances where you should not transfer your bank account into your living trust, for example:

1. When you are receiving social security; and
2. When your loved ones don’t have any income of their own.

Social Security must be paid directly to the beneficiary. It cannot be paid to a trust. If you are receiving Social Security by direct deposit, you should leave the account that receives the payments outside of your trust. You can, however, add a Transfer on Death (T.O.D.) or Pay on Death (P.O.D.) beneficiary designation on the account to enable it to avoid probate. You can even name your living trust as a beneficiary.

Similarly, if your heirs do not have any income of their own, you may want to leave some funds outside of your trust to be held in a shared bank account. But, you should limit such an account to only one or two months of expenses, as it may be exposed to creditor claims.

IRAs, 401ks, Pensions, and Anything That Grows Tax-deferred

Transferring these types of assets into your living trust may trigger an immediate taxable event. Instead, you should use beneficiary designations to designate your trust or your heirs as the beneficiaries of these accounts.

Most Automobiles

While you can transfer title to your automobile to your trust, it is usually not required. However, if you own a vintage or collector’s edition automobile, that will only increase in value over time, or that has a value of more than $100,000, you should be sure to transfer it to your trust.

Annuities

Annuities automatically bypass probate and pass according to beneficiary designations.

Why Consult With An Experienced Estate Planning Attorney?

It’s important to discuss funding your living trust with an experienced estate planning attorney to be certain that you are making the right decisions for your particular estate planning goals.

There are no two estates that are exactly alike. An experienced estate planning attorney will always develop an estate plan that is tailored to his or her client’s specific estate planning needs.

For information regarding funding your living trust and/or creating the right plan for your estate, contact Speedwell Law to schedule a consultation with an experienced Virginia estate planning attorney. Call (703) 553-2577 or use the contact form on our website to arrange a consultation.

The information on this site is for general informational purposes only. The information presented in this site is not legal advice or a legal opinion. You should seek the advice of legal counsel of your choice before acting upon any of the information in this site.