How to Fund a Revocable Living Trust
A signed trust is only the beginning; ownership and beneficiary arrangements determine whether the plan works.
Creating a revocable living trust does not automatically move property into it. Funding is the process of transferring appropriate assets to the trust or arranging for them to pass to the trust at death. WHY FUNDING MATTERS. A trust can control only property it owns or receives. If an asset remains solely in an individual’s name without a beneficiary or transfer-on-death arrangement, probate may still be required even though a trust exists. REAL ESTATE. Funding real estate generally requires a deed. The deed must be prepared and recorded correctly, and existing mortgages, title insurance, homestead rights, and property-tax rules should be considered. Property in another state deserves particular attention because a funded trust may help avoid a separate ancillary probate there. BANK AND INVESTMENT ACCOUNTS. Non-retirement accounts may often be retitled to the trustee of the trust. Financial institutions use their own forms and may require a trust certification. Keep confirmation showing that the change was completed. RETIREMENT ACCOUNTS. IRAs and employer plans are usually not retitled to a revocable trust during life. Instead, beneficiary designations are coordinated with the plan. Naming a trust can be appropriate in some cases, but retirement-account tax rules require individualized advice. PERSONAL PROPERTY AND BUSINESS INTERESTS. An assignment may help transfer ordinary personal property. Closely held companies may require a separate assignment, consent, amendment, or compliance with an operating or shareholder agreement. STATE-SPECIFIC DETAILS. Illinois, Minnesota, and Wisconsin have different deed forms, recording practices, marital-property rules, and homestead protections. A transfer that is routine in one state should not be copied mechanically in another. KEEP THE PLAN CURRENT. Review funding after opening or closing accounts, refinancing, buying property, moving, receiving an inheritance, or changing business ownership. Maintain a simple asset schedule and keep it with the estate-planning records. THE BOTTOM LINE. Funding is not clerical cleanup; it is what allows the trust to perform its intended job. This article provides general educational information and is not legal advice. Consult a qualified attorney and tax adviser about your specific circumstances.
