In this guide
Why Funding Your Trust Matters
A revocable living trust is a legal entity that holds ownership of your assets for your benefit during your lifetime and distributes them after your death. However, the trust only works if assets are actually titled in the name of the trust. If you don't transfer ownership, those assets are not controlled by the trust and will be subject to probate—the court-supervised process that can be time-consuming and costly.
For example, if you have a bank account in your individual name and you die, the account will likely go through probate, even if your trust is the beneficiary of your will. To avoid this, you must change the title on the account to the name of the trust. Similarly, real estate, vehicles, and investment accounts need to be retitled.
Funding your trust also ensures that your successor trustee can manage or distribute assets according to your wishes without court intervention. If an asset is not in the trust, your trustee may have no legal authority over it, causing delays and potential disputes among heirs.
- Assets not in the trust are subject to probate.
- Trustee only has authority over assets titled in the trust's name.
- Proper funding avoids delays and legal fees.
- Funding ensures your estate plan works as intended.
Assets You Can Transfer to Your Trust
Most assets can be transferred to a revocable living trust, including real estate, bank accounts, investment accounts, stocks, bonds, business interests, and personal property like vehicles and jewelry. However, some assets should not be transferred, such as retirement accounts (IRAs, 401(k)s) because transferring them could trigger immediate income tax. Instead, you can name the trust as the beneficiary, but be aware of tax implications.
Life insurance policies and annuities are also typically kept outside the trust; you can simply name the trust as the beneficiary. This avoids the need to retitle the policy and keeps the death benefit out of probate.
Personal property like furniture, art, and collectibles can be transferred via a simple assignment or a bill of sale, listing the items and signing it. For high-value items, you may want to attach an inventory list to the trust document or use a separate schedule.
- Real estate, bank accounts, and non-retirement investments: transfer directly.
- Retirement accounts: name the trust as beneficiary, not direct transfer.
- Life insurance and annuities: use beneficiary designation.
- Personal property: use an assignment or inventory list.
- Business interests: transfer shares or membership interests.
Step-by-Step: Transferring Real Estate
Real estate is often the most valuable asset and requires a formal deed to transfer. You will need to prepare a new deed that transfers the property from your individual name to the name of your trust. For example: 'John Doe, as trustee of the John Doe Revocable Living Trust dated [date].' The deed must include the legal description of the property, which you can find on your current deed or property tax statement.
After preparing the deed, you must sign it in the presence of a notary public. Some states require witnesses as well. Then, you must record the deed with the county recorder's office where the property is located. There is usually a filing fee. Recording provides public notice of the transfer and is essential for title purposes.
If you have a mortgage on the property, transferring the deed to your trust does not trigger the due-on-sale clause that would require full payment of the loan. Federal law (Garn-St. Germain Act) prohibits lenders from enforcing due-on-sale clauses when a property is transferred to a revocable living trust where the borrower is a beneficiary. However, you should notify your lender and keep making payments as usual.
- Prepare a new deed with the trust's name and legal description.
- Sign the deed before a notary (and witnesses if required by state law).
- Record the deed at the county recorder's office.
- Check with your lender about the transfer; it's usually allowed.
- Consider updating your homeowner's insurance to reflect the trust as an insured party.
Transferring Bank and Investment Accounts
To transfer a bank account, you typically need to visit the bank with a copy of your trust document (or the certificate of trust) and identification. The bank will change the account title to something like 'John Doe, trustee of the John Doe Revocable Living Trust dated [date].' You can also open a new account in the trust's name and transfer funds, but ensure the account is properly titled.
For brokerage accounts, contact your financial institution. They will require a copy of the trust agreement or a certificate of trust to open a new account in the trust's name or retitle an existing one. You may need to fill out forms and provide a taxpayer identification number—for a revocable trust, you can use your Social Security number, but you may also obtain an EIN if you prefer.
When transferring stocks or bonds held in certificate form, you may need to reissue them in the name of the trust. This process involves completing a stock power form and sending the certificates to the transfer agent. Many people hold securities in 'street name' through a broker, which simplifies the process—just retitle the brokerage account.
- Bank accounts: visit branch with trust certificate and ID.
- Brokerage accounts: contact broker for retitling forms.
- Certificates: use stock power and send to transfer agent.
- Keep a copy of the trust certificate for each institution.
- Update online banking and direct deposits to the new account.
Transferring Vehicles, Business Interests, and Other Assets
Vehicles are transferred by completing a title transfer form from your state's DMV. You'll need to provide the current title, a copy of the trust certificate, and pay a fee. Some states may not require a new title if the trust is revocable and you are the trustee, but it's best to retitle to avoid probate. Check your state's rules.
Business interests, such as shares in an LLC or corporation, are transferred by updating the ownership records. For an LLC, you may need to amend the operating agreement and file a statement with the state. For a corporation, transfer the stock certificates and update the corporate records. Legal advice may be prudent for complex business structures.
Other assets like boats, RVs, and aircraft have similar titling requirements. Personal property without titles (e.g., jewelry, art) can be transferred with a simple written assignment or by listing them in a schedule attached to the trust. For valuable items, consider photographing and listing them to avoid disputes.
- Vehicles: use DMV title transfer form and pay fee.
- LLC interests: amend operating agreement and file with state if required.
- Corporate stock: transfer certificates and update records.
- Boats and RVs: follow DMV or Coast Guard titling rules.
- Personal property: create an assignment or schedule.
Common Mistakes and How to Avoid Them
One of the most common mistakes is failing to fund the trust after creating it. Many people sign the trust document but never transfer assets, thinking the trust is enough. To avoid this, create a checklist of all your assets and systematically transfer each one. Review your beneficiary designations as well—they should align with your trust.
Another mistake is transferring assets that should not be in the trust, such as retirement accounts. As mentioned, transferring an IRA to the trust can trigger immediate income tax. Instead, name the trust as the beneficiary, but be aware that this may affect required minimum distributions. Consult a tax advisor.
Also, don't forget to update your trust after major life events like marriage, divorce, or the birth of a child. You may need to add new assets or change beneficiaries. Finally, remember that a revocable trust does not protect assets from creditors during your lifetime—if you're sued, trust assets are reachable. For asset protection, you'd need an irrevocable trust.
- Failing to transfer assets after signing the trust.
- Transferring retirement accounts directly (tax trap).
- Not updating beneficiary designations on life insurance and retirement accounts.
- Forgetting to retitle vehicles and other titled property.
- Assuming the trust protects assets from creditors (it doesn't).