Transferring Assets to Your Trust
If you have a trust and you did not fund it (by changing the title to your property), your assets will not avoid probate - and that is one of the main reasons to use a trust in your estate plans.
Here is a summary of the procedures for funding of a Living Trust:
Change of Title/Ownership
For assets such as bank accounts; non-IRA and non-401(k) investment and brokerage accounts; stocks and bonds held in certificate form; and real estate, these types of assets are funded into your trust by changing the owner of the asset from your individual name into the name of the trust:
Current Title: “Bill Moore"
New Title: “Bill Moore, Trustee, or hissuccessors in trust, under the Bill More Revocable Living Trust, dated August 1, 2017"
Note: We do not recommend that you place the vehicle you use for daily transportation or your primary "household" checking account into a trust. Instead, we recommend that you list your trust as the beneficiary by using a "payable on death" or "transfer on death" designation form.
Tangible Personal Property
For tangible personal property that does not have a legal title (jewelry, antiques, pictures, etc.); debts owed to you (i.e., personal loans that you've made); royalties, copyrights and patents; certain types of oil, gas and mineral rights; and partnership interests and membership interests in limited liability companies, these types of assets are funded into your trust by assigning ownership rights from your individual name into the name of the trust:
Current Title: “Bill Moore"
Assignment Language: "I, Bill Moore, hereby assign all of my right, title and interest in and to that certain Promissory Note dated March 1, 2010 in the principal amount of $40,000 by and between Bill Moore as lender and Sandy Smith as borrower, to Bill Moore, as Trustee, or his successors in trust, under the Bill Moore Revocable Living Trust, dated August 1, 2017."
New Title: “Bill Moore, Trustee, or his successors in trust, under the Bill Moore Revocable Living Trust, dated August 1, 2017.”
Note: Make sure that this does not trigger buy-sell provisions in an operating agreement or partnership agreement.
Change of Beneficiary
For assets such as retirement accounts, including IRAs, 401(k)s and 403(b)s; certain pension benefits; and Health Savings Accounts (HSAs) and Medical Savings Accounts (MSAs), you should not change the name of the owner of these accounts. Instead, the primary and/or secondary beneficiaries of these types of assets are changed to the trust:
Current beneficiary: “Lilly Sanders”
New beneficiary: “Bill Moore, Trustee, or his successors in trust, under the Bill Moore Revocable Living Trust, dated August 1, 2017.”
The reason why you do not want to change the title of these types of accounts to the name of your trust is because these are tax-deferred plans. Meaning, you did not pay income taxes on this money when the contributions were made. The income taxes are deferred until you withdraw the money at a later time; ideally, at your retirement when your income (and tax bracket) is lower. The primary beneficiary should be your spouse (if married) and your child/children should be named as a contingent beneficiary.
If you name your trust as the beneficiary, there are some tax disadvantages. A living trust is not entitled to the rollover option, as a spouse is, so income taxes must be paid when the proceeds are paid to your trust upon your death.
We guide our clients through the funding process. If you would like to schedule an appointment with us, please send us an email at Elan.Kaney@KaneyLaw.com or call us at 386-677-7965.