There’s no point to having a living trust if you don’t fund the dang thing! The trust operates for the benefit of your loved ones and heirs, but it’s useless unless your assets are moved into the trust.
The primary goal of the living trust for most folks is to avoid probate. And to avoid probate, you need to have the bulk of your assets either in the trust or titled with a named beneficiary. So I’m going to outline here the major things that should either be named in the trust or have designated beneficiaries.
Your Home and Other Real Property.
Retitling your home and real property in the name of your trust is always recommended to help avoid probate. Retitling your home is a fairly straightforward process: establish your trust, complete a trust transfer deed, and record the deed with the county (along with the PCOR form). And that’s it!
Of course, complications can arise with the recording of the trust transfer deed if the deed isn’t completed correctly or if there’s an obvious problem with the chain of title. You can also avoid probate on real property by using a transfer on death deed, but I generally recommend against transfer on death deeds.
With bank accounts, I’m referring to general bank accounts (e.g., Checking, Savings, Money Market, CDs). I’m not referring to brokerage accounts or qualified retirement plans – see the next post for more on those topics. There are three ways to set up a bank account to avoid probate. The first two deal with the living trust and the third doesn’t involve it at all.
So, for putting bank accounts into a living trust, there’s generally two schools of thought. Neither are wrong. First, some folks believe that all bank accounts should be in the name of the living trust. This allows the trustee to access the bank account. The upshot here is that if you’re the original trustee and you become incapacitated, then the successor trustee can access the account. This circumstance would block whomever is your designated agent via the durable power of attorney from accessing the account.
Second, other folks believe that the living trust should be named as the beneficiary of the bank account. This means that the account would automatically move into the name of the trust upon the death of the account holder. The only caveat here is that if the account holder becomes incapacitated, then the designated agent via the durable power of attorney is the one who can access the account, not the trustee.
Finally, the third option is to just not include the living trust as the account holder or the beneficiary and to name beneficiaries outright. Although naming beneficiaries outright might allow the account to avoid the probate process, it might also lead to inequitable distributions of your estate assets if you have multiple folks you want leave inheritance to and you don’t keep on top of your accounts. Additionally, problems arise if your beneficiaries predecease you.
Tangible goods without title are by far the easiest property to add to a living trust. Your trust should have a schedule of trust assets, likely named “Attachment A” or something similar. List on that schedule a description of all of the tangible goods which you’d like to include in the trust. That’s it!
There are two keys points here. First, you can’t include anything that has a title. So your prized collector’s Harley Davidson will need to be moved into the trust by way of a title transfer coordinated through the DMV. Second, you don’t need to include everything in the schedule, but you shouldn’t neglect this task either. As a rule of thumb, I recommend including anything with a fair market value of over $1,000 in the trust. This is generally furniture, art, jewelry, substantial electronic equipment, and tools.
In the next blog post, I’ll wrap up this topic and discuss how brokerage accounts, business interests, and insurance policies should be established in relation to your living trust and beneficiaries.