What Assets Should Go Into a Trust?
If you created a revocable living trust to avoid probate and you think that your estate plan is done once you’ve signed your trust documents, it isn’t. Why not? Because after you sign your documents, the next step is to change titles and beneficiary designations to your trust. This is called “funding” your living trust.
Let’s be clear - when you put assets in your living trust, you do not lose control of them. You can continue to buy and sell assets just as you did before. And anything you put into your living trust can always be taken out later.
There are a number of specific processes and considerations to bear in mind for different types of assets. Here is a brief overview of some of the most important:
You should always check with your bank before attempting to transfer an account or saving certificate. Sometimes, there are penalties for early withdrawal, and sometimes banks will require that you open a new account instead of changing the name on the existing account. In either case, you’ll need to have a new passbook (and certificate, if applicable) issued in your trustee’s name.
Any corporate stocks or mutual fund shares issued in certificate form must be registered in the trustee’s name and a new certificate must be issued. You’ll need to contact the broker who manages the account or the issuer of the financial instrument.
You can combine multiple certificates representing shares of one corporation into a single new certificate in the name of the trustee. But asking for a series of new certificates that correspond 1:1 to the old ones can make it easier to trace income tax from sales made by the trustee.
For corporate stock, bonds, or mutual fund shares that are held in “street” name by a broker or in bookkeeping entry form, you must change the name on the account to reflect ownership by the trustee. To do this, you may need to provide a copy of the Trust Agreement.
Similar to stocks, any bonds or debentures (issued by a publicly or privately held corporation, the U.S. Government, agency, or any state or subdivision thereof) must be registered in the name of the trustee and a new bond or debenture must be issued. Most unregistered bonds or debentures can be converted into registered form and handled the same way.
For unregistered or bearer bonds or debentures, which cannot be converted into registered form, you must be able to prove in some other way that they have been transferred to the trustee. Typically, this is done with a transfer document that lists the bearer securities being transferred and is retained by the trustee.
Any new bonds purchased after you’ve established the revocable trust should be purchased in the name of the trustee, and the confirmation or other proof of purchase retained with the instrument to prove trustee ownership.
Tangible Investment Assets
These kinds of assets (gold bullion, silver coins, art objects, etc.) can be a little trickier to handle since there isn’t a simple way to show proof of registration or ownership. You can handle them using an instrument of assignment similar to how you handle bearer bonds, or using a Bill of Sale for no consideration.
It’s also advisable to take a detailed and accurate inventory of the items, complete with photos and descriptions. Also, if the items are insured, make sure to transfer the policy in the name of your trust.
You must also register any partnership (general or limited) in the name of your trustee and have a new certificate of partnership interest issued or have an amendment added to the partnership agreement to reflect the updated ownership. Before making any such changes, be sure to fully investigate your obligations. Some partnerships, for instance, will require that you pay for the amendment preparation, which can be quite costly.
You must transfer the legal title for any real property or interest in real property (whether personal or investment) to your trustee by means of an executed, notarized, and recorded deed that complies with all state law requirements. There are a few additional considerations to keep in mind when transferring real estate into your revocable trust:
If there is a mortgage on any property, you must contact the mortgage company before you initiate the transfer to confirm that they will grant written permission to add your trust as a responsible party on the mortgage. You can also send a letter to the mortgage holder explaining your intentions and stating that if you do not hear back from them within ten days, you will assume consent.
You also need to determine whether the transfer would affect any existing mortgage or deed of trust, specifically whether the transfer might trigger any “due on sale” clause.
In addition to transferring property titles, you should also contact your title insurance company and homeowner’s insurance carrier so that you can add your trust to those policies as well.
Finally, while ownership of life insurance policies is not generally transferred to a revocable trust, the death benefits of such a policy can be made payable to your trustee. This is a simple matter of completing change-of-beneficiary forms from your insurance company.
While funding a revocable trust can seem like quite an undertaking, it doesn’t have to be. With our help, you can manage the process with relative ease. It’s really just a matter of working through the steps in a methodical way until all appropriate asset are transferred. And, given the amount of hassle and waiting that you’ll be saving your loved ones, there’s no question that it’s well worth the effort to set up and fund your revocable trust sooner than later.
Don’t put it off, call us today – we’ll help make sure your trust does exactly what you want it to do.