First of all, congrats on establishing an estate plan that will help your family transition after your death with the least amount of administrative burden possible. A living trust is a great way to make sure your assets are not tied up in the Courts while your family is trying to carry on with the day-to-day after you’re gone.
The next step is to re-title your probate assets into the trust to take them out of your probate estate. For a discussion on what constitutes a probate assets, click here.
The living trust is only going to be as good as your ability to fund it during your lifetime. What that means is that if you fail to re-title your probate assets into the trust, the trust will do nothing for your estate and will be worth the paper it’s printed on. It’s incumbent upon you to re-title your assets as soon as reasonably possible – after all, tomorrow is promised to no one.
So, what does that look like?
This would include your clothing, household furnishings, jewelry, and really any personal property that does not have an account or certificate of title attached to it. Depending on where you got your trust prepared, you likely executed a Declaration of Trust and an Assignment of Personal Property – both of which would work together to assign all of your personal property and effects to the Trust. They essentially act as a bill of sale from you to your trust. That’s the easy part.
Vehicles are assets that have a certificate of title. In order to move your vehicles into your Trust, you’ll have to re-title the vehicles by applying for a new Certificate of Title through the DMV. When doing so, instead of having it titled as “John Doe”, re-title it as “John Doe, Trustee of the John Doe Living Trust” – or however your trust is named and whoever the Trustee of your trust is. It’s important to have the new owner be the Trustee of the trust, rather than you individually. You may need to bring the Certification of Trust with you as the DMV may need you to prove that the Trust exists and that you’re the Trustee. Vehicles can go either way – it’s up to the Trustor to decide whether they want to re-title their vehicles. They are considered a high liability vehicle, which can put the rest of the trust assets at risk, and if the vehicle is the only thing left in your estate after you pass, there is a simple form from the DMV that can be used to re-title the vehicle after you’re gone. It’s not a deal breaker if your car doesn’t get re-titled.
Savings, checking, money markets, and CDs should all go to the Trust. Go to the bank where these accounts are located (hopefully not Wells Fargo or Bank of America – they’re difficult to work with in this regard) and follow their established procedures to transfer your accounts from your own individual name to the Trust (I.e., “John Doe, Trustee of the John Doe Living Trust”). Each bank will have their own policy and forms for this, but all will require you to have the Certification of Trust with you to establish the existence of the Trust.
Similar to bank accounts, any non-deferred securities-based account needs to be re-titled as well, unless it has a beneficiary designation attached to it (I.e., non-probate). Again, each company will have their own policies and forms to make this happen. If you work with a Financial Advisor, your Advisor can help you (or do it for you). Title it the same as you would your checking or savings accounts (“John Doe, Trustee of the John Doe Living Trust”). For married couples with a Joint Trust, title it as “John Doe and Jane Doe, Co-Trustees of the Doe Family Living Trust” – or however your trust is named.
These are non-probate accounts as long as your beneficiary designations are up-to-date and accurate. I generally do not have clients change their IRA or 401k in any respect unless they are directed to by a Financial Advisor. There are tax issues that may arise if your change the beneficiary of an IRA/401k to be the Trust instead of an individual. Seek tax advise from a tax professional before doing so. 401k’s and 403b’s cannot have non-human beneficiaries, so a trust is not an option for these types of plans, but traditional IRA’s may have an IRA Beneficiary Trust as it’s beneficiary, which can mirror the distribution schedule of the rest of your plan.
While life insurance is non-probate (payable on death account), it’s still a good idea to make the Trust the beneficiary of the policy, for a couple of reasons. First, there’s no tax issues in making such a change because life insurance death benefits are tax-free. Second, if your intention is to transfer all of your assets to the trust, and for the trust to support your family, it makes sense to have the insurance proceeds included in the trust to consolidate assets and have all of your assets following the same distribution schedule. Finally, it injects your trust with cash to wrap up your final expenses, like funeral costs and the final hospital bill. Do not change the ownership of the policy, just change the beneficiary to the Trust.
With the house, you can take one of two paths. If you’re married, your home has added creditor protection included in the Tenancy by the Entirities ownership designation which prohibits a lien against the home unless the lien is for a joint debt of both spouses. A marital home passes outside of the estate, so unless both of you pass simultaneously, the house is non-probate. However, if you’re more worried about stream-lining the asset succession process and the possibility of both spouses passing together, moving the house into trust may be more valuable to you than any creditor protection.
If you are single or widowed, you own your home individually and it may become subject to probate, and does not have the TBE creditor protection, so it should be deeded to the Trust. This is easily accomplished by executing a Quitclaim Deed from yourself to the Trust (I.e., “John Doe, Trustee of the John Doe Living Trust”).
DISCLAIMER: Everything set forth above is based on the legal realities of asset ownership and how probate assets should be re-titled to take them out of your probate estate. Your specific insurance company, bank, mortgage company, etc., may have their own internal policies that prohibit or frown upon moving certain assets from your own name to your trust. It’s important to investigate how moving your assets into your trust are going to impact your bank accounts and insurance coverage, among other things, prior to moving forward with a probate avoidance plan. You may need to switch banks or insurance providers to best effectuate your probate-avoidance needs.
It’s best to work with an estate planning or financial professional to make sure your assets are properly titled. Any questions? Shoot me an email: [email protected]