Estate Planning 101 (Part 4)

Key Points

  • A Trust is only as good as its implementation. Follow these three steps once you’ve drafted your documents.
  • After you sign and execute your legal documents, you’ll want to add your assets into your Trust.
  • Periodic check-ups of your Estate Plan is sensible to keep your Trust up to date with important changes in your life.

After you’ve created your Trust documents, there are three important steps to consider. First, you’ll need to sign and execute your Trust documents. Second, you’ll want to fund your Trust with your most valuable assets. Finally, you’ll want to perform periodic check-ups to ensure that your Trust is up to date.

Ready. Aim. Fire.

Once the your Revocable Living Trust has been completed, it is ready to sign and execute. This part is straightforward. To fully execute your Trust, you’ll need to have your documents signed and notarized. And of course, be sure to keep your executed documents in a safe place so that you have access to them when you need them most.

But you’re not done yet. Next you’ll need to “fund” your Trust.

Funding Your Revocable Living 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 Revocable Living Trust document, but haven’t changed titles and beneficiary designations, you will not avoid probate. Your 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 Revocable 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 Revocable 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 

Real Estate within the United States

To transfer property into the Trust you will need to have new a deed prepared, typically from a local title company. Once you have the deed you should file it with your county. 

The easiest way to transfer real estate to your Revocable Living Trust is to contact a local title company and request that they create either a quitclaim or warranty deed transferring your property from you as an individual to you as grantor of your Revocable Living Trust.

The title company may request a copy of your Trust. If you decide to transfer the property yourself, be advised that each state (and in some cases, each county within a state) has their own rules and procedures that must be followed to record a new deed. Generally, the process requires you:

  1. Complete either a quitclaim or warranty deed transferring the property from you as an individual to you as grantor of your Revocable Living Trust.
  2. Contact the county recorder’s office where the property is located. Request the county send you whatever form or paperwork they require to process a change ownership for a piece of property, specifically transferring your property into your Revocable Living Trust.
  3. Complete the paperwork when you receive it from the county.
  4. Make sure the county knows that this is not a “transfer for value” (i.e., there was no formal sale to a new buyer). You do not want the county to reassess the property for property tax purposes.

This sounds complicated, but we have connections with title companies that can streamline this process for you. Remember, we’re here to help.

Real Estate not located in the United States

There is no point in transferring foreign property to your Revocable Living Trust. The US laws, government and courts have no authority over property in another country. Property in a foreign country does not go through probate in the United States.

Every country has it own rules and laws regarding how to transfer real estate at the death of the
owner. Given this, real estate located in a foreign country should not be placed in your Revocable Living Trust. As such, do not transfer ownership of real estate in foreign countries to your Trust. Instead, it is best to seek competent counsel in the country where your property is located.

Transferring Other Assets

Other types of assets may need to be updated and transferred into the Revocable Living Trust. We can guide you step-by-step instructions for a wide array of assets, so do reach out if you need assistance with this task.

AircraftAnnuityAutomobiles
BoatBrokerage AccountsBurial Plot
Certificate of DepositChecking AccountClosely Held Stock (Sub-S or Inc)
CopyrightEmployee ​BenefitsGeneral Partnership Inter​est
Government Securities in Your PersonalPossessionIndividual Retirement Account (IRA)
JudgementLife Insurance PolicyLimited Liability Company (LLC)
Limited Partnership InterestLivestock BrandMineral Rights
Mobile HomeMotor HomeMutual Fund Accounts
Patent or TrademarkPension and Profit Sharing PlanPersonal Property
Professional CorporationPromissory Note – Secured by a ​Deed of TrustPromissory Note​ – Unsecured
Recreational VehicleRoyaltiesSafe Deposit Bo​x
Savings AccountSole ProprietorshipStock Certificates in Your Personal Possession
TimeshareUniform Transfers to Minors Account (UTMA)Uniform Gift to Minors Account (UGMA)
401(k) Retirement Plan403(b) Retirement Plan457 Retirement Plan
Table 1. List of Assets that May be Added to Your Revocable Living Trust

Each of these different types of assets may be added into your Trust, and each has its own steps to do so. One-by-one, you can populate your Revocable Living Trust with the assets that you hold to be of most value.

Periodic Check-ups

Just like a routine visit to a dentist can keep your teeth in tip-top shape, you should also consider routine check-ups for your Estate Plan. After all, life changes all the time, and major life changes can happen at any time. These major changes can include:

  • Marriage
  • Divorce
  • Birth or adoption of a child
  • Death of a beneficiary
  • Change or addition of a beneficiary
  • Change of your trustee or successor trustee
  • Change of the way the property is distributed
  • Change of which property is part of the Trust
  • Change of your name
  • Acquisition of a new property that you want to add to the Trust
  • Change of residence to another state where the inheritance laws are different

Again, we’re here to help. And rest assured, with a Revocable Life Trust, you can amend your Trust at any time to keep up with your evolving circumstances.

Need More Help?

At Investing Forever Advisory, we have Will and Trust Packages, as part of our Estate Planning Service. You don’t have to make these important decisions on your own. Each estate planning session starts with a series of questions specifically designed by our attorneys. Your answers to these questions give the attorney the information they need to make a document recommendation to craft an estate plan that aligns with your wishes and intentions.

If you’re ever in need of guidance, these blog posts may be of help. But be sure to contact a financial, tax, or legal professional for guidance and information specific to your individual situation. And as always you can reach out to me directly here with questions or concerns about your personal situation.

Finally, if you want to see how your risk appetite stacks up, check out my free risk assessment here.

The End.

* Blog content used with permission from EPNavigator.com.