The process of re-titling assets (or "funding" of your living trust) is a crucial step in making your estate plan effective - so do not neglect it! Titled assets and financial accounts presently held in your individual name(s) should be re-titled in the name of your living trust(s) if you want them to be a part of the trust.
All assets for which there is a public record title (vehicles and real estate), and all accounts held by any financial institution (bank, brokerage, insurance company, etc.) are candidates for being re-titled.
If you have questions about which assets to put into your trust or leave out of your trust, seek the advice of a lawyer or other financial advisor (stock broker, accountant, financial planner, etc.). The following comments provide some general guidance in this area.
Bank Accounts & Brokerage Accounts
Single Owners
For a single person, your bank accounts and investment securities (stocks, bonds, mutual funds, etc.) may be re-titled as follows:
The Trustee of the [YOUR NAME] Living Trust Agreement dated [DATE].
For convenience, the name on any financial account checks (whether a bank account or a brokerage account) can be simply indicated as:
Trustee, [YOUR NAME] Living Trust
Joint Accounts
For joint bank accounts (checking and savings) and jointly held investment securities where both joint holders have signed a living trust document, accounts may be re-titled as follows:
An undivided one-half interest to the Trustee of the [PERSON #1] Living Trust Agreement dated [DATE] and an undivided one-half interest to the Trustee of the [PERSON #2] Living Trust Agreement dated [DATE].
Although a signature card should read as shown above, for convenience, the name on your checks can be simply indicated as:
Trustee, [PERSON #1] Living Trust
Trustee, [PERSON #2] Living Trust
Alternate Scenarios
Of course, you do not have to transfer any financial account into your trust if you do not want to. There may be valid reasons for putting some accounts, but not others, into your trust. For example, if you are single and have adult children, you may have separate joint accounts with each of your children. In that case, the joint accounts need not necessarily go into the trust at all, because they will pass to your children automatically upon your death. Yet, you may have other accounts in your name alone that should go into the trust because they will not pass to your heirs automatically at death unless you do so. It depends on your situation, how many separate financial accounts you have, and how each of those accounts is held.
Similarly, instead of having joint accounts, you and your spouse or domestic partner may have separate bank or investment accounts, each in only one person's name. In that case, you would not re-title those accounts as an undivided one-half interest to each of you, but you would re-title those accounts in the name of the trustee of each of your separate trusts.
Life Insurance Policies and Retirement Plans
Life insurance policies and retirement plan accounts (IRA accounts, pension plans, 401(k)'s and 403(b)'s) are usually handled differently. Typically, you do not have an immediate or unqualified right to the funds available through a life insurance policy or a retirement plan, so for all practical purposes those funds do not belong to you yet.
You (or your heirs) have a right to receive those funds in the future, but at the moment, you have nothing you can actually transfer to a living trust. Plus, most insurance policies and retirement plans prohibit you from transferring, borrowing against, or otherwise reaching your right to receive funds in the future except within the narrow confines of the terms of the policy or plan.
What insurance policies and retirement plans do tend to have is a beneficiary designation procedure, usually indicated on a standard beneficiary designation form you can obtain from the company holding your account or policy.
A standard beneficiary designation form generally will allow you to designate a primary beneficiary and a contingent beneficiary. If the primary beneficiary exists when you die, all of the funds payable by reason of your death will be paid to that beneficiary. Funds will be paid to the contingent beneficiary only if the primary beneficiary does not exist or survive you when you die.
Here are some common beneficiary scenarios for you to consider:
Alternative #1:
Primary beneficiary: My spouse or domestic partner
Contingent beneficiary: Equal shares to each of my children and their descendants by representation.
Alternative #2:
Primary beneficiary: My spouse or domestic partner
Contingent beneficiary: Trustee of the [YOUR NAME] Living Trust Agreement dated [DATE]
Alternative #3:
Primary beneficiary: Trustee of the [YOUR NAME] Living Trust Agreement dated [DATE]
Contingent beneficiary: None
Which alternative should you use? Discuss it with your financial advisor.
Real Estate
Because real estate is often the most valuable single asset people have, it is common for people to transfer their real estate (or at least their primary residence) into a living trust. However, merely listing your real estate in a trust schedule or including a statement to the effect that "I hereby transfer all of my real estate to my living trust" is not enough. You have to make a deed of transfer for the transfer to be effective, typically a deed of trust, a warranty deed, a quitclaim deed, or similar document.
For a single owner, the deed would need to be from yourself as grantor to the Trustee of the [YOUR NAME] Living Trust Agreement dated [DATE] as grantee.
For joint owners, to take one piece of property and split it evenly between both of their living trusts, you would need two deeds:
Deed #1: from [PERSON #1] and [PERSON #2] as joint tenants [with rights of survivorship] as grantors, an undivided one-half interest to Trustee of the [PERSON #1] LIVING TRUST AGREEMENT dated [DATE] as grantee; AND
Deed #2: from [PERSON #1] and [PERSON #2] as joint tenants [with rights of survivorship] as grantors, an undivided one-half interest to Trustee of the [PERSON #2] LIVING TRUST AGREEMENT dated [DATE] as grantee.
For people with multiple properties, it is also possible to transfer one piece of property to the trust for [PERSON #1], and a separate piece of property to the trust for [PERSON #2]. Again, which method you choose will depend on your situation, how many separate properties you have, how each of those properties is held, and how much each property is worth.
If you are in an asset protection situation, where one spouse is potentially subject to professional or business liabilities, it may be prudent to transfer all properties to the living trust of the other non-business, non-professional spouse, and none to the living trust of the business or professional spouse.
Recording of Deeds
One thing to keep in mind in all of the above situations is that while it may be prudent to prepare deeds of transfer of real estate, it may not be wise to record them until the grantor has died. Why? Because you don't want stray deeds goofing up the chain of title on the public record. On the other hand, if you keep a deed unrecorded until the grantor has died, make sure that they still own that property before recording the deed.
Scenario #1:
You make a living trust agreement and transfer your house to the trust. You record the deed of transfer. Five years later you revoke your living trust agreement. A year later you want to sell your house. Problem: When you go to sell the house, the public chain of title shows the owner as the Trustee of your trust, but the trust does not exist. How will you be able to record a proper deed of transfer to your new buyer?
Scenario #2:
Your parent makes a living trust agreement and transfers the primary residence to the trust. A deed of transfer is prepared but unrecorded. Five years later your parent moves into a smaller home and sells the old property. A year later, your parent dies and you find the original deed for the prior home. Problem: If you record the old deed (for property your parent no longer owns), you will goof up the chain of title for the new owner, who will get a most unpleasant surprise when they try to resell the property.
Therefore, carefully consider your situation. If you record a deed of transfer to your living trust, be sure to sell the property in the name of the trust, and be sure to have a bank account in the name of the trust into which the proceeds of sale can be paid. If you find a deed of transfer that has not been recorded when someone dies, verify that they owned the property at the time of death before recording the deed.
Exceptions
It may be that none of the above scenarios will apply if you regularly buy and sell real estate, are in the real estate business as a commercial enterprise, or if your real estate is held by a corporation, limited liability company, or other legal entity.
Vehicles
The ownership of a car, truck, boat or airplane, like real estate, is kept as a matter of public record on file with a state agency. However, unlike most real estate (except for people who deal in real estate as a business), vehicles tend to be transferred fairly often in a person's lifetime. Therefore, it may be much more cumbersome to buy and sell every vehicle you own in the name of your trust, than it is for you to transfer real estate into a trust (which may happen only a very few times in your life - and fewer times as one gets older).
Carefully consider, and talk over with a lawyer or financial advisor, whether you want to transfer the title of vehicles you own into the name of your living trust.
Conclusion
Again, if you have any questions regarding how to re-title an asset, or what assets need to be re-titled, please seek the advice of a lawyer or your financial advisor.
When your desires for the distribution of your estate change, your assets substantially increase in value, you change residence to another state, or family relationships change, you should review your estate plan to make sure it still meets your needs.
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