Understanding Funding your Living Trust

Understanding Funding your Living Trust.

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What Is a Living Trust?

A living trust is a legal document, or trust, created during an individual’s lifetime where a designated person, the trustee, is given responsibility for managing that individual’s assets for the benefit of the eventual beneficiary. A living trust is designed to allow for the easy transfer of the trust creator or settlor’s assets while bypassing the often complex and expensive legal process of probate. Living trust agreements designate a trustee who holds legal possession of assets and property that flow into the trust.

Advantages of a living trust

Avoids probate but necessarily estate taxes

Administer property in different state with one document

Manages business and personal affairs during your life

Manage asset if you become incapacitated

Disadvantages of a living trust

Expensive to draft

Involves cost to update

Expenses can outweigh benefits

Not court supervised

Types of Living Trusts

Revocable living trust

The trust settlor can designate himself or herself as the trustee and take control of assets within the trust. However, this stipulation means the assets in the trust remain a part of the trust settlor’s estate, meaning the individual may still be liable for estate taxes should the estate be valued beyond the estate tax exemption at the time of death. The trust settlor also has the power to change and amend trust rules at any time.

Irrevocable living trust

The settlor relinquishes certain rights to control over the trust. The trustee effectively becomes legal owner, but the individual would also reduce their taxable estate. Once the trust agreement for an irrevocable living trust is made, the named beneficiaries are set and the settlor can do little to amend that agreement.

 Funding  Your Living Trust

Funding a living trust involves transferring property to the trust. An asset not transferred to the trust is not owned by the trust and will be subject to probate (unless you’ve used another technique to avoid probate). In short, if there is no living trust fund, there is no living trust. How to fund a trust varies depending upon the nature of the property. You can transfer ownership, or, in some cases, designate the trust as a beneficiary upon your death.

Steps to Fund Your Living Trust

Find out the proper way to fund your trust so that it will accomplish your goals, and what assets you should not transfer to your trust.

 1. Transfer Real Estate

Transferring real property to a trust requires a deed, typically a quit claim deed. The deed needs to be executed as required by law in the state where the property is located, with the required witnesses, notary provision, recording with the appropriate agency, etc. You may need to file a copy of the trust document, or a summary of the trust called a memorandum of trust or certificate of trust.

2. Transfer Titled Personal Property

If personal property has a title document, it will be necessary to obtain a new title showing the living trust as the owner. In some states you can designate your trust as a beneficiary on a motor vehicle title, which keeps the vehicle in your name, but automatically transfers it to the trust upon death. Find out if transferring ownership will result in substantial taxes or fees.

3. Fund Untitled Personal Property

Personal property without a title document (furniture, books, jewelry, tools, collectibles, etc.), can be transferred with an assignment of ownership document, which must be signed and dated. It is important to adequately describe the property, so that there is no doubt about its identity.

4. Transfer Bank Accounts

Your bank can tell you how savings, checking, and money market accounts can be titled in your trust. It may require closing the account, and opening a new account in the name of the trust. If you want to do this with a Certificate of Deposit (CD), be sure that your bank won’t consider this an early withdrawal and assess penalties. You can wait for the CD to mature, then open a new CD for the trust.

5. Fund Securities

Your broker can advise you how to retitle a brokerage account, or get stock and bond certificates reissued. A nonqualified annuity can be retitled, or the trust can be made a beneficiary.

 6. Transfer Business Interests

Interests in partnerships and LLCs, and shares in a corporation, can be retitled in the name of the trust. Check the partnership agreement, LLC operating agreement, or articles of incorporation, for transfer restrictions or procedures.

 7. Change Life Insurance Beneficiaries

Your trust can be the owner and/or the beneficiary of a life insurance policy. Making the trust the owner allows the trustee to manage the policy in the event you become mentally incapacitated, such as borrowing against the policy to obtain funds for your care.

Get help

If you would like to learn and understand more about the funding your living Trust, any of our estate planning attorneys would be happy to assist you. Contact us today.

DISCLAIMER: The information provided in this blog is for informational purposes only and should not be considered legal advice. The content of this blog may not reflect the most current legal developments. No attorney-client relationship is formed by reading this blog or contacting Morgan Legal Group.

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