Transferring Assets / Funding a Living Trust
Perhaps the most important step (aside from picking good successor trustees) is transferring assets to the living trust before the grantor passes. The legal term for this process is "funding the trust".
Why transfer assets? Assets outside the living trust after the grantor passes may be subject to probate. Assets in the living trust before the grantor passes avoid probate.
Living trusts do come with a pour-over will to transfer assets to the living trust after the grantor passes, but any assets transferred to the living trust may have to go through probate first.
How are assets transferred to a living trust?
Titles on assets must be changed.
BANK ACCOUNTS
If your bank is local, this step is often as easy as visiting a branch with your living trust documents and informing them you've just created a living trust and wish to transfer your bank accounts to the living trust.
The bank should record the identities of the successor trustees, so when the successor trustees show up with a letter of resignation from the initial trustee, note of incapacition from a physician or death certificate, the bank will be prepared.
It is not uncommon for successor trustees to show up a bank expecting access to a bank account only to learn the grantor "forgot" to transfer the account into the living trust, which delays access to the account.
Typically, bank account numbers and checks do not change when transferring bank accounts to the living trust but ask your bank about their procedures regarding bank accounts and living trusts.
REAL ESTATE
If you have an attorney preparing your living trust, the attorney will often prepare a new deed for your real estate transferring ownership from John Smith to John Smith, Trustee, of the The John Smith Living Trust.
Transferring property to a living trust does not make your mortgage come due. During a refinance, the mortgage company will often take the home out of the living trust temporarily for the refinance. It is your responsibility after the refinance to ensure the property is deeded back into the living trust.
Property from other states can be placed in a Florida living trust.
VEHICLES
Vehicles can be transferred at the motor vehicle department by having a new title issued (bring your trust documents and original vehicle title with you).
INVESTMENTS (AFTER TAX)
Investments that are not tax-deferred (meaning taxes are paid annually) can be transferred similar to a bank account. Contact the financial institution, let them know you have a living trust and they will instruct what to provide them.
INVESTMENTS (PRE-TAX)
Tax-deferred investments, including IRAs and 401(k)'s, are NOT titled in the name of the living trust for tax reasons. These investments are based on your age and transferring them to "an age-less" trust will be viewed as cashing out your investment, causing a taxable event.
If these investments have living beneficiaries listed, they will avoid the probate process and are not subject to the grantor's creditors (unless the beneficiary is a spouse).
A living trust may be listed as the beneficiary to control distributions to young beneficiaries, but the beneficiaries may lose the ability to "stretch" an IRA and the money may be used to repay the grantor's creditors.
LIFE INSURANCE
Life insurance is often kept in the owner's name rather than retitled into a living trust (though there are circumstances and types of trusts where the trust owns the policies). Like any other account with living beneficiaries, life insurance avoids probate.
A primary purpose for young families creating living trusts is to be the beneficiary of life insurance. The trust's distribution terms govern beneficiaries' access to life insurance money. Insurance payouts to the living trust can be used to repay creditors.
ASSETS WITHOUT TITLES (Jewelry, stamp collections, furniture, etc.)
Living trusts have some type of assignment of personal property for assets without a title which automatically transfers current and future goods to the living trust WITHOUT having to itemize every item.
If you have specific items to bequeath, living trusts include pages to write by hand items for specific people.
Another important step
Talk to anyone who has served as a personal representative or successor trustee of an estate. Those who were left by the deceased an inventory of titled assets (where bank accounts are, contacts, phone numbers, etc) spend much less time and often have less stress than a personal representative or successor trustee who must hunt down all the assets.
Don't forget to leave a current list of debts and liabilities. These MUST be repaid and your successor trustee could be held liable for failure to repay debts if assets are immediately distributed to beneficiaries.
If you are going through the efforts to create a living trust to make things easy for your successor trustees, keep an inventory of assets and debts current.
