Have you properly funded your living trust?
For many people, avoiding probate is an important estate planning objective. Probate can be costly and time consuming, and its public nature raises privacy concerns. An effective tool for avoiding probate is a revocable, or "living," trust. It can also be used to manage your assets if you become incapacitated.
For a living trust to work, you must transfer assets to it that would otherwise go through probate – a process known as "funding" the trust. Most people fund their trusts around the time they sign the trust documents.
Once your estate plan is complete, however, it's easy to overlook the need to transfer later-acquired assets to your trust. If you don't transfer them, those assets may be subject to probate and will be outside the trust's control if you become incapacitated.
To avoid these problems, consult your estate planning advisor periodically – and any time you acquire a major asset – to be sure your trust is properly funded.
Procedures for transferring assets to a trust vary depending on the asset type.
To transfer real estate, for example, you must execute and record a deed conveying title to the trust. Transferring bank and brokerage accounts typically involves providing forms or letters of instruction to the institution holding the accounts. Interests in closely held businesses usually require a simple assignment. Tangible personal property may require an assignment or bill of sale.
Certain assets shouldn't be transferred to a living trust, such as IRAs and qualified retirement plan accounts. These are "nonprobate" assets, so avoiding probate isn't an issue, and transferring them to a trust is considered a taxable withdrawal. Instead, you can simply name an individual as beneficiary. Or, if you don't want an individual to have complete control over the account, you can name your trust as beneficiary. But you'll need to take care to structure everything properly. Otherwise, the entire account balance may have to be withdrawn sooner than your heirs would prefer, potentially causing undesirable tax consequences.
Back to Udell Associates