Is Your Revocable Trust Properly Funded?

A revocable living trust is an invaluable estate planning tool for both spelling out who will receive your property while also avoiding the scourge of the probate process. However, if a revocable living trust is not properly funded, it may end up being essentially useless. This begs the question, “What does proper funding of a revocable trust entail and how do I know if this was done for my trust?”

Funding a revocable trust means transferring legal title of the asset into the name of the trust. Depending on the character of the asset this will take a variety of different forms. I will discuss a few different common asset types and how to ensure that they are properly transferred into your living trust.

 Real Estate

Real estate is the asset most likely to cause problems in estate planning and end up stuck in probate. Real Estate must be transferred into your living trust by grant deed, either during the initial purchase or via subsequent written instrument. Often, people will transfer their house into their living trust when they create the trust, but later move and forget to have the title company put the new property in the trust. This is very common and requires probate to eventually distribute the property.

Savings accounts, Brokerage accounts, and CDs

A savings account, brokerage account, or CD must similarly be titled in the name of the trust in order for the trust to function properly and keep the assets out of probate. An account or CD is titled in the name of your living trust by the institution where the account or CD is held. You must inform the institution that you want the account held in your living trust and give them a “certificate of trust” transfer document which should have been included in your estate plan package. The institution will then put title to the account in the name of the trust. When this is done your account statements will have the name of the trust as the account holder.

 LLC of Small Corporation Interest

An LLC membership or shares in a privately held corporation must also be transferred into the name of your living trust. This is done with transfer of ownership forms.

IRA, 401(k)

Any tax-deferred accounts deal with succession via beneficiary forms and are therefore not transferred into the trust. A trust may however, depending on the circumstances, be named as a beneficiary. There are important tax considerations in this area and you should talk to a tax professional regarding your particular circumstances.

Because of the importance of keeping your living trust funded, you should periodically check to make sure that no assets have been left out. A little bit of effort now can save a lot of time, money, and inconvenience someday down the road. If you have any questions, don’t hesitate to call my office and I will be happy to help.

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