General guidelines around funding your trust.
What does 'funding' a trust mean?
Funding your trust is the process of transferring your assets from you to your trust. To do this, you physically change the titles of your assets from your individual name (or joint names, if married) to the name of your trust. You may also change the beneficiary or contingent beneficiary designations to your trust.
Why is funding your trust so important?
If you have signed your living trust document, but haven’t changed titles and beneficiary designations, you will not avoid probate. Your living trust can only control the assets you put into it. You may have a great trust, but until you fund it (transfer your assets to it by changing titles), it doesn’t control anything. If your goal in having a living trust is to avoid probate at death and court intervention at incapacity, then you must fund it now, while you are able to do so.
What happens if I forget to transfer an asset?
Along with your trust, your attorney will prepare a “Pour-Over will” that acts like a safety net. When you die, the will “catches” any forgotten asset and sends it to your trust. The asset will probably go through probate first, but then it can be distributed according to the instructions in your trust.
Which assets should I put in my trust?
Generally, assets you want in your trust include real estate, bank/saving accounts, investments, business interests and notes payable to you. You will also want to change most beneficiary or contingent beneficiary designations to your trust so those assets will flow into your trust and be part of your overall plan.
What about my IRA and other tax-deferred plans?
Do not change the ownership of these to your living trust. You can name your trust as the beneficiary, but be sure to consider all your options, which could include your spouse; children, grandchildren or other individuals; a trust; a charity; or a combination of these. Whom you name as beneficiary will determine the amount of tax-deferred growth that can continue on this money after you die.
Most married couples name their spouse as beneficiary because 1) the money will be available to provide for the surviving spouse and 2) the spousal rollover option can provide for many more years of tax-deferred growth. (After you die, your spouse can “roll over” your tax-deferred account into his/her own IRA and name a new beneficiary, preferably someone much younger, as your children and/or grandchildren would be.) A non-spouse beneficiary can also inherit a tax-deferred plan and roll it into an IRA to continue the tax-deferred growth, but only a spouse can name additional beneficiaries.
Of course, any time you name an individual as beneficiary, you lose control. After you die, the beneficiary can do whatever he or she wants with this money, including cashing out the account and destroying your carefully made plans for long-term, tax-deferred growth. The money could also be available to creditors, spouses and ex-spouses, and there is the risk of court interference at incapacity.
Naming a trust as beneficiary will give you maximum control because the distributions will be paid not to an individual, but into a trust that contains your written instructions stating who will receive this money and when. After you die, distributions will be based on the life expectancy of the oldest beneficiary of the trust. You can also set up separate trusts for each beneficiary so that each one’s life expectancy can be used.
The rules for these plans have recently been made simpler, but it is still easy to make a costly mistake. Because there is often a lot of money at risk, be sure to get expert advice.
Transferring Real Estate
To transfer property into the trust you will need to have a new deed prepared. If you did not already order the new deed in the estate planning portal, you can log into the account, click on the Deed tile and order deed(s). The cost is $199 and typically takes 4-6 days for the deed to be delivered via email. (Not available in NY, MD, LA, OH, AL, NJ and VA)
Transferring Other Assets
Other types of assets may need to be updated and transferred into your revocable trust. Our comprehensive Funding Guide gives you step-by-step instructions for a wide array of assets.
Assets with Named Beneficiaries
Assets with named beneficiaries include annuities, life insurance policies, IRAs, 401k plans, pension, profit-sharing plans, and employee benefits.
Assets with named beneficiaries are not subject to probate and therefore do not need to be owned by your revocable trust. As a result, the ownership of these assets is not assigned to the trust, but rather the trust can be named a contingent beneficiary on these assets.
You leave the primary beneficiaries alone and add the new revocable trust as the secondary or contingent beneficiary. Upon death, the asset will be given to the individual named as the primary beneficiary. Should the primary beneficiary predecease the owner, the asset will flow into the trust and be distributed according to the provisions of the trust.
How to Transfer Financial Assets (Not Real Estate)
The institutions that manage your financial assets - banks, mutual fund companies, brokerage firms, insurance companies, etc. - identify you as the legal owner of the assets you have with them.
When you create a revocable trust, ownership of your assets must be officially changed on the institution's records to reflect your trust. You must contact each institution directly to change the legal owner. They will have their own forms and processes that they require you to follow to change the ownership.
For information regarding funding specific types of assets correctly into your trust, please download our Funding Guide.