Revocable trusts are one of the most popular estate planning tools, as they offer grantors a private, flexible method to transfer assets to their beneficiaries and avoid probate. However, it is not the type of document that is complete when it is signed and dated. Once the revocable trust is executed, grantors must also take the steps to retitle their personal assets to the trust. This process is called funding the trust. Funding the trust does not affect the grantor’s use of the asset, but changes ownership from the grantor to the trust. This step is crucial, as a trust only holds assets that are titled in its name. Failing to title assets to a revocable trust could result in personal assets being admitted to a lengthy probate process, which would defeat the purpose of the revocable trust. Thus, it is imperative to title assets to the trust and take advantage of all the benefits a revocable trust provides.
The type of asset determines which approach is needed for titling, because not all assets should be titled to a trust. Some assets should not be titled to a trust to avoid unsavory tax consequences, while other assets can name the trust as a beneficiary. Below lists suggestions on how to title assets based on type. Be sure to ask your estate planning attorney for funding instructions and check whether they can assist you in completing assignments, titles, and beneficiary forms.
Non-qualified accounts/investments (e.g. brokerage, checking, money market, etc.)- The owner of the account could retitle the account in the name of trust. Or as an alternative, the owner of the account could remain the same, however, a Payable on Death (POD) or Transfer on Death (TOD) Designation should be added naming the trust.
Qualified retirement type accounts (e.g. IRA, 401(k), etc.)- Ownership should remain in the individual’s name. Be careful with beneficiary designations on these accounts. We often recommend naming the spouse as the primary beneficiary, followed by individually named contingent beneficiaries due to the distribution rules laid out in SECURE Acts 1 & 2. However, we highly encourage you to discuss this with your estate planning attorney to determine the best course of action.
Life insurance, or other non-qualified type annuities- Ownership should remain in the individual’s name. The beneficiary designation should be updated to the trust.
Real property– Consideration of ownership and tax issues based on the nature of the current title is required. A transfer of ownership requires new deeds for each property filed with the proper jurisdiction.
Business interests– The estate planning attorney can draft a written assignment of interest, so long as there are no restrictions related to the entity’s formation agreement (i.e. general or limited partnership). Corporate or professional interests should be discussed with the entity’s corporate counsel and the estate planning attorney.
Oil, gas, and mineral rights– Transferring to the trust depends on whether the interests are owned or leased. If you own the interests, a deed should be recorded to the trust. If you lease the interests, a written assignment of rights to the trust should be prepared.
Automobiles– We encourage leaving ownership in the individual’s name and adding a TOD naming an individual. Your local DMV may charge a small fee to add a TOD to your current title. We have found that in the event of auto accidents, third parties are more likely to seek legal action if they know about trust assets.
Tangible personal property– The estate planning attorney can draft an assignment to the trust.
