Funding your Revocable Living Trust

Funding a revocable living trust involves transferring ownership of your assets from your name to the trust's name. Proper funding is critical because a trust only governs the assets that have been placed into it. If assets are not transferred into the trust, they may still be subject to probate and won’t be managed according to the trust’s terms. At Omega Planning we help guide you through the funding process

Steps to Fund a Revocable Living Trust

1. Review the Trust Document:
• Identify the trust's formal name, which will be used when retitling assets.
2. Retitle Assets in the Trust’s Name:
• Change the ownership of assets to reflect the trust as the owner. For example:
• Old Title: John Smith
• New Title: John Smith, Trustee of the John Smith Revocable Living Trust, dated on blank date.
3. Transfer Specific Types of Assets: Funding involves different processes depending on the type of asset:

Real Estate

• Process:
• Execute a new deed transferring ownership to the trust. This could be a quitclaim deed or a warranty deed, depending on your situation.
• Record the new deed with the appropriate county recorder's office.
• Considerations:
• Check for any tax implications, especially if the property is in a different state.
• Notify your mortgage lender, as some mortgages have "due-on-sale" clauses, though these usually do not apply to revocable living trusts. If the property is in Pennsylvania we will prepare a tax exclusion for you.

Bank Accounts

• Process:
• Contact your bank to retitle the accounts in the trust’s name or create new accounts owned by the trust.
• Provide a copy of the trust’s certificate of trust or trust summary to the bank.
• Accounts to Transfer:
• Checking and savings accounts.
• Money market accounts.

Investment Accounts

• Process:
• Contact your financial institution or brokerage to retitle the account to the trust.
• Provide the institution with trust documents, if required.
• Assets to Include:
• Stocks, bonds, mutual funds, and other investments.

Retirement Accounts (401(k), IRA, etc.)

• Process:
• Do not retitle retirement accounts into the trust as it may trigger tax consequences.
• Instead, update the beneficiary designations to name the trust as the contingent beneficiary (after your spouse or other primary beneficiaries).
• Considerations:
• Consult a financial advisor to ensure this aligns with your goals and avoids unintended tax implications.

Life Insurance and Annuity Policies

• Process:
• Beneficiary designations should be used that replicate the trust distribution. You do not have to make your life insurance or annuity beneficiary designations align with your trust distribution. If you choose to have a distribution that differs from your trust distribution you should a create letter of intent for the policy. If you choose to align the distribution with your trust and the distribution is too complex to handle with a beneficiary designation, then change the beneficiary designation to name the trust as the primary or contingent beneficiary.
• Considerations:
• It is possible to cause adverse tax consequences for your heirs when naming the beneficiary of your policy as your trust

Vehicles

• Process:
• Retitle the vehicle in the name of the trust by visiting your state’s Department of Motor Vehicles (DMV).
• Considerations:
• Some states may not require vehicles to be retitled in the trust’s name, depending on their value.

Personal Property

• Process:
• Use a personal property assignment document to transfer tangible assets (e.g., furniture, jewelry, art) to the trust.
• Considerations:
• For high-value items, create an inventory or consider retitling items with legal titles.

Business Interests

• Process:
• Amend ownership documents (e.g., stock certificates or LLC membership agreements) to reflect the trust as the owner.
• Considerations:
• Consult with an attorney, especially if the business has multiple owners or complex agreements.

Digital Assets

• Process:
• Update online accounts, such as domain registrations, cryptocurrency wallets, or digital storage, to include the trust as the owner or designate the trustee as a representative.
• Considerations:
• Create an inventory of digital assets and provide access information for the trustee.

Common Mistakes to Avoid

1. Leaving Assets Out of the Trust:
• Assets not transferred into the trust may need to go through probate.
2. Forgetting Beneficiary Designations:
• Ensure beneficiary designations (e.g., life insurance, retirement accounts) align with your trust’s goals.
3. Failing to Update the Trust Over Time:
• Add newly acquired assets to the trust as your estate grows.
4. Not Consulting Professionals:
• Seek guidance from attorneys and financial advisors to avoid legal or tax pitfalls.

How to Confirm the Trust is Fully Funded

• Review Asset Titles:
• Ensure titles and ownership documents reflect the trust as the owner.
• Keep an Inventory:
• Maintain a list of assets in the trust for your records and the trustee’s convenience.
• Periodic Updates:
• Regularly review and update the trust’s assets to reflect new purchases or life changes.

Conclusion

Funding a revocable living trust is essential to ensure it functions as intended. By transferring ownership or updating beneficiary designations, you ensure that your assets are managed according to your wishes, avoid probate, and simplify the process for your heirs. Consulting with an estate planning attorney can help you properly fund the trust and address any complexities in the process.