What does it mean to fund a Living Trust? What happens if a trust is unfunded? How do I transfer real estate into a trust? How do I transfer a business interest into a trust? How do I transfer stocks into a trust? Does a funded trust avoid probate? We look at five key ways to transfer assets into a Living Trust.
By James L. Cunningham Jr., Esq.
How do you fund a Living Trust to best plan for your family’s future? How do you fund a trust to ensure your trust assets are protected and passed on according to your wishes?
The path to securing your legacy and simplifying the inheritance process begins with understanding how to fund a trust. With guidance from an experienced estate planning attorney, funding a trust becomes a simple process that will safeguard your future and that of your loved ones.
Creating a Living Trust is an important step in estate planning. However, creating the Living Trust document is only the beginning of the process. You must also “fund” the trust, a term that might sound complex, but is really just lawyer-speak for moving assets held in your individual name to the Living Trust.
When a Living Trust isn’t properly funded, the trust can’t do its job, and probate can later be required after death or incapacity, leading to a much longer, costlier process for heirs. “Unfunded” assets will likely need to pass through a probate process before distribution, they are more exposed to creditors, and your estate might not be handled as intended.
Here, “probate” refers to the process of a court overseeing the assets transfer of a grantor’s death. This process ensures that debts are settled and assets are properly transferred according to the person’s will or, if no will exists, in line with state laws. This includes transferring of real estate and other large assets, which can slow the probate procedure.
This process to be lengthy, costly, and public, which is one reason to consider funding a Revocable Living Trust as part of the estate planning process. Forming a revocable trust may provide asset protection.
The process of funding your Living Trust involves transferring your assets—such as real estate, bank accounts, or other forms of property—into the trust. Real estate is transferred by deed while bank and brokerage accounts typically require working directly with the institution and filling out their unique paperwork.
But here’s where it gets a bit tricky: not all assets should go into a Living Trust. IRAs, 401(k)s, annuities and life insurance typically do not go into your Living Trust. These assets simply don’t fit within the framework of a Living Trust.
Beneficiary designations on these types of accounts must be kept clear and updated, as they pass directly to the named primary or secondary beneficiary upon your death, bypassing the trust altogether. We’ll talk more about that later.
Like most legal processes, funding a Living Trust requires a careful and methodical approach. But don’t worry, it’s not as daunting as it sounds. It’s all about understanding what goes where and why.
Along with reading this blog, you may wish to watch the webinar on this page for more details. And because of the complexities involved, we always suggest working with a qualified, savvy lawyer when funding your Living Trust. Here at CunninghamLegal, we provide a complete range of services to support Estate Planning and can help with your crucial funding decisions. Book a call here to learn more.
What is a Living Trust? What is a Trustee?
So, what is a Living Trust? Picture a Living Trust as a bucket with a handle where you place your assets, and as the creator of the trust, you’re the one holding the handle of the bucket. When you stop holding the handle (i.e., when you pass away or become incapacitated), the bucket is passed to your designated Successor Trustee, who then becomes the Trustee.
A trust doesn’t just hold assets; it can protect your beneficiaries’ inheritances. It provides a smoother, more private process than probate, and can even offer a layer of protection from creditors. A Trustee manages the trust’s assets, makes decisions about the property in the trust for the beneficiaries’ benefit, and follows the trust document’s instructions.
Just remember, your Trust “bucket” needs to be “funded” with your assets to serve its purpose. The person who holds onto the handle (you, while you are alive and mentally sound) is the trustee, managing the assets within the trust “bucket.” Understanding which assets to place in your trust is crucial so that your trust functions as intended without the negative consequences that come with an unfunded (or improperly funded) Living Trust.
How Do I Fund a Trust with Real Estate?
For the purpose of this blog, we are considering only a Revocable Living Trust when it comes to funding a trust with real estate—which lawyers call by the legally nuanced term “Real Property.”
Regardless of when you purchased the real estate, the first step of unding a Revocable Trust is to be sure that your trust document permits the holding of real estate. This is typically a job for an experienced estate planning lawyer. Most Living Trusts that I have seen over the decades do permit the trust to hold Real Estate, but some do not. There’s more on this below.
If you are purchasing real estate after creating the trust, the title can be taken in the name of the Trust. Let’s say you decide to buy a new house after you’ve already set up your Living Trust. At the time of purchase, instead of putting the title of the house in your personal name, you can have the title issued directly in the name of your trust. This means the trust becomes the owner of the property from the get-go.
On the other hand, if the real estate is already individually owned (purchased before creating the trust), it can be transferred by deed into the trust. So, if you own a house in your personal name and then create a Living Trust, you can transfer the ownership of the house to your trust. This is done by preparing a new deed, with your trust as the “grantee”- or new owner. Once the deed is signed and notarized, it’s recorded in the county recorder’s office, and the trust becomes the owner of the property. This way, the house becomes part of the trust’s assets.
In most cases, if done properly, this transfer into your Living Trust will not trigger a reassessment under California’s Proposition 13, but discuss your individual situation with a savvy lawyer.
What Kind of Deed is Used to Transfer a Property Title to a Trust?
Which kind of deed should you use when you transfer property to a Living Trust? In California, two common types of deeds are used for these transfers: the Grant Deed and the Quitclaim Deed.
The Grant Deed is utilized when a person on the current deed transfers ownership or adds a new owner. It conveys any after-acquired title and includes implied warranties, whether explicitly mentioned in the deed or not.
The Quitclaim Deed, on the other hand, is used when a grantor transfers only the interest they have at the time the deed is signed. It does not convey any after-acquired title, and there are no implied warranties. This type of deed is often used in divorces or to “perfect title” to real property.
A word of caution here: the names of deeds matter. Do not mistake a Deed of Trust for a deed that can transfer your home into your trust. The terribly-named Deed of Trust is a document used in mortgage finance to secure a loan on a property, not for transferring ownership of assets into a Living Trust for funding purposes. Using it to fund a trust is the wrong way to do it, and a different type of deed like a Grant Deed or Quitclaim Deed is typically used to transfer ownership into a trust.
As always, consult a savvy lawyer before titling assets to your Trust. We’re happy to help: set up a call with CunninghamLegal today.
How Do I Fund a Trust with Bank & Brokerage Accounts?
The assets you place into your Living Trust bucket may include your bank accounts. So, when exploring how to fund a trust with these accounts, take the following steps. Let’s break it down.
STEP 1: Identify Accounts. The first step in this process is to identify the brokerage and bank accounts you wish to transfer into your trust. You might be wondering, “What assets should not be in a trust?” or “How do I decide which accounts to include?” This is a conversation best had with a lawyer or a trusted advisor such as a Certified Financial Planner who can provide guidance based on your unique circumstances.
A brokerage account might be part of a “household account.” which may include various types of assets like an IRA, 401(k), 529, annuity, money market and cash accounts, or stocks and bonds. Importantly, depending on your circumstances, your retirement accounts don’t go into your Living Trust, a topic we explore in depth in other blogs & videos. These accounts pass by Beneficiary designation at your death to the people identified on the Beneficiary designation or “subscription agreement” at the institution that holds the account.
On a high level, putting assets like an Individual Retirement Account (IRA) into a living trust can have bad tax consequences. If you transfer the assets in your IRA into a Living Trust, it’s typically considered a withdrawal, and the entire amount becomes taxable immediately!
For example, if you have an Individual Retirement Account (IRA) worth $2M and you transfer it into a Living Trust, it would typically be considered a full withdrawal of the IRA. In the United States, withdrawals from an IRA are treated as taxable income. So, if you were in the highest tax bracket (37% as of 2024), you could potentially face an immediate tax bill of $740,000 (37% of $2M)!
It’s important to meet with a savvy lawyer to determine what accounts you should use to fund your trust. Remember that other vessels for retirement accounts exist, and here at CunninghamLegal we regularly deal with a variety of retirement wealth preservation strategies. For example, if there are significant assets in an IRA, our team of attorneys could consider creating an IRA Legacy Trust, among other things, to receive the IRA after your passing and protect the inherited assets from creditors, divorce, and unnecessary taxes.
STEP 2: Contact Your Bank and Advisor. Reach out to your bank and financial advisor. They will be able to guide you through their specific process for transferring an account into a trust—each institution is different. Don’t be surprised if they ask for details about the trust and the trustee—this is standard procedure and is so the bank can confirm that the transfer is legally sound. This process can be smooth if you have a solid relationship with your financial advisor or bank, or it can get a bit clunky if you’re trying to do this on your own.
STEP 3: Complete Bank Forms. Once you’ve gathered all the necessary information, the bank will typically provide you with forms to complete. This is where the rubber meets the road, as completing these forms is what facilitates the change of account ownership. Be patient and diligent—you may find yourself making multiple follow-up calls to complete the process. Note that using the exact name of the trust at each step is vital. If it’s “Doe Living Trust,” don’t mistakenly write “The Doe Family Trust,” as this may lead to problems down the line.
STEP 4: Bank Changes Ownership of Account. After you’ve dotted the i’s and crossed the t’s, the bank will change the ownership of the account. This is a significant step, as it officially moves the account into the trust, reflecting it as an asset of the trust.
STEP 5: Detailed Review. The process isn’t over just yet! It’s essential to review the details of the account, including the title, to ensure everything is correct. Again, any mistakes here could lead to complications later, so be thorough in your review. Bank clerks do sometimes make mistakes.
STEP 6: Repeat for all accounts. Last but certainly not least, repeat this process for any other accounts you wish to transfer into the trust. This may seem repetitive—but remember that each account represents a valuable asset within your Trust.
How Do I Fund a Trust with Corporations, Partnerships, and LLCs?
Among the assets that can be moved into a Trust are your business interests, particularly if you own an interest in a corporation, partnership, or an LLC (see later in this article for publicly traded stock). This process, while it may sound complicated, can be relatively straightforward, assuming there are no additional requirements stipulated in the business agreements—but having a professional for this process who knows what they are doing is highly recommended. The team at CunninghamLegal specializes in these areas. Contact us for guidance throughout the process.
STEP 1: Review the Corporation, Partnership, or LLC Agreement. Before you initiate this process, it’s important to review the bylaws of the corporation, the partnership agreement, or LLC operating agreement. These agreements occasionally contain specific restrictions or requirements when it comes to transferring interests. You wouldn’t want to find out mid-journey that there’s a roadblock you hadn’t anticipated.
STEP 2: Assignment of Interests. Transferring your corporation, partnership, or LLC interest starts with an Assignment of Interest document. Think of this document as a formal declaration where you, as the owner, state that your interest in the business is being transferred to the trust. In essence, you’re handing over the keys to your business to your trust. This document serves as proof of this significant transition.
STEP 3: Provide Assignment of Interests to the Manager. You may be wondering, “What do I do with the Assignment of Interests document?” It should promptly be provided to the Manager or Managers of the corporation, partnership, or LLC, essentially notifying the leadership of an organization that the ownership has changed. They must be made aware of this transition to prepare and adjust for the changes ahead.
If you are the Manager of a corporation, LLC, or partnership, you still need to undertake the necessary steps to formally transfer the interest to the trust, even though you may be essentially transferring the interest to yourself, in your capacity as Trustee. The acceptance of an Assignment of Interest is important to provide a clear record of the transfer, and to document that the trust is legally recognized as the owner of the interest.
Failing to accept an Assignment of Interest when transferring business interest to a trust could lead to legal ambiguity regarding ownership, potential future disputes, complications for successors or beneficiaries, and possibly necessitate probate proceedings—defeating one of the main benefits of creating a trust. As always, it’s important to consult with a savvy lawyer for personalized advice. Consider setting up a call with our offices today.
STEP 4: Update the Records. Once the transfer is complete, the corporation, partnership, or LLC Manager must update the records of the corporation, partnership, or LLC. It is a bit like changing the registered owner’s name on a vehicle’s logbook. This update is vital, as it officially recognizes the trust as the new owner of the transferred interest. If the Manager doesn’t update the records after a business interest is transferred to a trust, it could cause ownership confusion, potentially leading to legal disputes and complications for Successors or Beneficiaries.
With careful planning and a clear understanding of the process, you can set the appropriate protections in place and plan for business succession as you plan your overall estate.
How Do I Fund a Trust with Publicly Traded Corporate Stock?
If you own publicly traded corporate stock, you might be wondering how to incorporate this into your trust. The good news is that transferring publicly traded corporate stock is typically a clear-cut process, provided there are no restrictions or additional requirements.
STEP 1: Check Corporate Records. The first step in this journey is to check the corporate records. This is the same as checking the road conditions before you drive. You need to see if there are any restrictions or requirements for transfers.
STEP 2: Update Ownership Records. Once you’ve confirmed that the route is clear, it’s time to update the ownership records. This is done through an Assignment of Shares. This is a document that legally transfers the ownership of the shares from you to the trust.
If you don’t execute an Assignment of Shares when attempting to transfer corporate stock into a Living Trust, you run the risk of the transfer being incomplete or not legally recognized. The completed Assignment of Shares should be kept with your important documents, as it is evidence of the transfer of shares to the trust. Again, this step is like changing the registration of your vehicle—and you wouldn’t want to lose that document either!
STEP 3: Cancel Current Stock Certificate. Once you’ve completed the Assignment of Shares, you need to cancel the current stock certificate(s) that are in your name (as the individual owner). These are the certificates that were issued to you when you first acquired the shares. It’s a bit like turning in your old vehicle plates once you’ve gotten new ones.
STEP 4: Issue New Stock Certificate. The final step in this journey is to issue a new stock certificate. This new certificate should reflect the trust as the new owner of the stock. This is a crucial step to prove the correct legal ownership of the shares and to avoid any potential issues or complications down the line.
While this process may seem daunting at first, the peace of mind that comes with knowing your corporate stock is held within your trust makes this journey worthwhile.
How Do I Get Expert Help Transferring Business Interests to a Trust?
Transferring business interests into a Trust can seem complex, but you don’t have to navigate it alone. At CunninghamLegal, we have a dedicated team of savvy estate planning lawyers ready to help. Contact us for expert guidance through this intricate process.
How Do You Fund a Living Trust with Personal Property? How Do I Change Titles to a Trust?
In estate planning, there’s often a lot of focus on high-value assets like real estate, stocks, and business interests. However, personal property, those items that enrich our daily lives and often hold sentimental value, also deserve a seat at the planning table.
Think about assets like vehicles, boats, or even airplanes. These items, which often hold significant financial value and can be crucial assets in your estate, can and should be considered when funding your trust.
The process is relatively simple. Many items, like a prized vintage car or a beloved sailboat, all have titles. This title acts as a formal declaration of ownership, like a name tag that clearly states, “This belongs to me.” When transferring these assets into a trust, you’re essentially rewriting that name tag to your trust.
Now, you might wonder, “What happens to these items if I don’t put them in my trust?” Well, most of these items will be included as part of the ‘Pour-Over Will.’ The ‘Pour-Over Will’ is like the safety net in your estate plan. If any of your assets are not properly placed into the trust, the ‘Pour-Over Will’ can potentially catch them after your death, allowing your trustee to transfer these assets into your trust.
Importantly, however, a Pour-Over Will by itself does not avoid probate. Any assets that are only covered by a Pour-Over Will and not already in the trust at the time of death will generally need to go through a probate process before they are transferred to the trust.
Funding your trust with personal property while you’re alive can save your beneficiaries from potential disputes over sentimental items and other headaches later.
Take, for instance, the treasured family classic car that’s been turning heads for years. Your son might have always been dreaming of the day he can take the wheel. By placing this beloved vehicle into the trust and designating it to your son, you’re not just passing on a set of keys, you’re making it clear to the family that he should get the car.
Importantly, by clearly designating ownership of these items in your trust, you can help prevent potential conflicts. If done properly, this process streamlines the transition of assets, creating a smooth, swift transfer without the need for probate.
Bottom line? Don’t overlook the importance of personal property. That boat or plane or car isn’t just a mode of transport, it’s a valuable part of your estate that deserves careful consideration.
After all, estate planning isn’t just about the destination, it’s about creating a smooth journey for your loved ones.
How Do I Fund a Trust with a Timeshare?
Ah, timeshares. Those vacation spots that provide a home away from home, year after year. For many, they are cherished spaces of relaxation and rejuvenation. But when it comes to estate planning, how do you plan for this piece of paradise to end up in the right hands?
How the timeshare is packed into a trust is dependent on how it’s owned. If you hold the timeshare ownership via a deed, you must transfer it to your trust by deed (discussed above under real estate). The process can vary from one jurisdiction to another, so it’s essential to consult with an estate planning lawyer who understands the nuances of your particular situation. Typically, it’s done by deed transfer, which is something our office can help you with. Set up a call with us today.
On the flip side, some timeshare agreements allow you to designate a beneficiary or a ‘successor owner’. This individual will step into your vacation shoes when you’re no longer able to use the timeshare.
But here’s something to think about—not everyone might want the timeshare. Just as everyone’s idea of a perfect vacation differs, not all your Beneficiaries might appreciate or be able to afford this kind of asset. It’s crucial to have upfront and honest conversations with your intended Beneficiaries about whether they would want to inherit the timeshare.
Ultimately, the objective is to plan so that the timeshare, along with all your other assets, transitions smoothly into the right hands without causing any unnecessary burden or inconvenience. After all, estate planning, much like a well-planned vacation, is all about peace of mind and making things easier and more enjoyable for those you love.
What We Do at CunninghamLegal
The lawyers and staff at CunninghamLegal help people plan for some of the most critical times in their lives and then guide them through when those times come. Funding a Trust is a fundamental step in the estate planning process. It involves the careful transfer of various types of assets—real estate, bank accounts, corporate stock, personal property, and unique assets like timeshares. While the process may seem intimidating, with the right guidance and a methodical approach, it’s entirely manageable.
Working with an estate planning lawyer can really help with funding your trust. They can advise you on what assets to put into the trust and handle the legal steps for you. Our goal is to make sure your trust is set up just how you want it, for the benefit of your loved ones.
We have offices throughout California with expert estate planning, tax planning, and real estate transaction attorneys. We invite you to contact us for help and advice. We offer in-person, phone, and virtual appointments. Just call (866) 988-3956 or book an appointment online.
