INSTRUCTIONS: Once You Have A Living Trust, Then What?
This information is intended to answer many questions you might have about how to transfer various assets to your trust (after it is signed and notarized), and whether you should transfer certain assets to your trust and more!
Steps to transfer assets to the trust
The act of adding assets to a trust is known as “funding”. To put an asset into a trust, the name of the current owner of the asset (i.e., you) should be replaced with the name of the trust (the new owner of the asset). This is called “retitling” of an asset.
The name of your trust is usually found on the front cover page of your trust and generally looks something like this:
A. John Smith Living Trust dated January 3, 2017
– OR –
B. John Smith and Mary Smith Living Trust dated January 3, 2017
(Note: the date you signed the trust is typically part of the official name.)
When an asset is retitled, the ownership paperwork will usually show both the name of the trustees AND the name of the trust, such as:
1. John Smith, as Trustee under the John Smith Living Trust dated January 3, 2017;
2. John Smith and Mary Smith, as Trustees under the John Smith and Mary Smith Living Trust dated February 10, 2010;
– OR –
3. John Smith, as Trustee under the Jennifer Jones Living Trust dated March 20, 2002, to be held for the benefit of Jennifer Jones
With this information, let’s consider the following assets. (Click each item below to view the full details.)
Types of Assets
Checking accounts, savings accounts, and CD’s are transferred to a trust either by retitling the existing account, or closing the existing account and opening a new one in the name of the trust. In either approach, transfer documents can be completed at the financial institution by speaking with a teller at the bank, credit union, or savings and loan branch, or by initiating the change online. If you intend to retitle an account in the name of your trust, the new title should use language something like in Examples 1, 2, or 3 above.
Note: If you have retitled your account, please pay attention to your next bank or brokerage statement to see how your name was changed on the envelope and statement. The address should no longer display “just your name”. Rather, the title should read something like Examples 1, 2, or 3 above (although greatly abbreviated). If there are no indications of a change, follow up with the bank or broker to confirm that they have retitled the asset.
Safe deposit boxes usually can be transferred to a trust by retitling the owner of the box to the name of the trust, using language something like in Examples 1, 2, or 3 above. If you intend to retitle your box in the name of your trust, inform a teller at the branch. They should be able to assist you.
Note: If you have retitled your safe deposit box, please pay attention to your next safe-deposit-box-rental invoice to see how your name was changed on the envelope and statement. The address should no longer display “just your name”. Rather, the title should read something like in Examples 1, 2, or 3 above (although greatly abbreviated). If there are no indications of a change, follow up with the bank to confirm that they have retitled the box.
If you intend to retitle your securities or your brokerage account in the name of your trust, a broker should be able to assist you. A “transfer letter” is included in the back pocket of your trust binder, if you created a trust at Hart, Mieras & Morris, Inc. If you will be initiating the retitling process with the broker by mail, you can send the transfer letter to your broker, and you should hear back from the broker with instructions of how to complete the retitling of your securities or brokerage account. The title for the account should use language something like in Examples 1, 2, or 3 above.
Note: If you have retitled your account, please pay attention to your next brokerage statement to see how your name was changed on the envelope and statement. The address should no longer display “just your name”. Rather, the title should read something like in Examples 1, 2, or 3 above (although greatly abbreviated). If there are no indications of a change, follow up with the broker to confirm that they have retitled the account.
WARNING: Retirement accounts are special! Generally speaking, we do not recommend retitling or changing the ownership of your IRAs or other retirement plans to a trust. You have the option to change the beneficiary to be the trust.
We recommend speaking to a financial advisor prior to adjusting beneficiaries, so you can be aware of the tax implications and the beneficiary’s withdrawal options when a trust is being named the beneficiary.
Also, please read below in “EXTRA TIPS FOR TRUSTORS – The Big Question”, which has a subsection on Beneficiary Designations discussing some differences between naming the trust as a beneficiary versus naming an individual as beneficiary. You have the option to change the beneficiary designation as follows:
- If you are married,
- If you are single,
- Primary Beneficiary: can be a trust (using wording something like in Example A or B above) or other beneficiaries you choose.
You have the option to change the beneficiary to be the trust. We recommend speaking to a financial advisor prior to adjusting beneficiaries, so you can be aware of the tax implications and the beneficiary’s withdrawal options when a trust is being named the beneficiary. Also, please read below in “EXTRA TIPS FOR TRUSTORS – The Big Question”, which has a subsection on Beneficiary Designations discussing some differences between naming the trust as a beneficiary versus naming an individual as beneficiary.
Annuities can be either tax sheltered or not tax sheltered.
For Tax Sheltered:
- If you are married,
- If you are single,
- Primary Beneficiary: can be a trust (using wording something like in Example A or B above) or other beneficiaries you choose.
For Non-Tax Sheltered:
- If you are married,
- Primary Beneficiary: your spouse, usually, OR a trust (using wording something like in Example A or B above) or other beneficiaries you choose.
- If you are single,
If you desire to transfer your vehicles (registered in California) to a trust, you will need to complete the transfer information on the back of your title slip transferring the property from the current owner (i.e., you) to the trustee of the trust, using language something like in Examples 1, 2, or 3 above. The title document needs to be filed with the DMV (or via AAA, for convenience). You should receive a new title/registration in the mail. If you are purchasing a vehicle, that’s a great opportunity to easily take title in the name of a trust.
It is possible to put household furniture and furnishings and other tangible articles situated in or about the residence into a trust. Typically this is accomplished by the owner signing a document (usually called an “assignment”) that transfers a broad scope of assets to the trust, in one signature. Generally, if you created a trust at Hart, Mieras & Morris, Inc., you likely already signed such an assignment during the same visit when you created the trust. (This assignment was originally located at the rear of the trust document itself, just after your signatures and the notary’s stamp.) If you do not have such an assignment and want to transfer tangible personal property to a trust, please contact our office for assistance.
If bullion, coins, collectibles, etc. are in a safe deposit box titled in the name of a trust, the assumption is that they are assets of the trust. If these assets are kept in some other location, these items should be specifically mentioned in the “assignment” discussed previously under the heading Tangible Personal Property.
Property in any of the 50 states can be transferred to your Living Trust. Hart, Mieras & Morris, Inc. (“HMM”) is able to assist with the transfer of California and Arizona real properties to a trust. For property in other states, please contact an attorney licensed to practice in that state to assist with the transfer. You can usually find an attorney on the website for that state’s attorney bar association. If you have real property in another country, you should contact an attorney in that country to find out how to make provisions for transferring your interest to your beneficiaries after you die.
To transfer real property to a trust, a deed should be prepared transferring the property from the current owner (i.e., you) to the trustee of the trust, using language something like in Examples 1, 2, or 3 above. The signed deed is typically recorded with the county recorder of the county where that real property is located. (Please note, some states require additional documents to be submitted at the same time as such a deed.) Once the deed is recorded, the county recorder’s office will usually return the original deed directly to the new owner (i.e., the trustee(s)). This process may take 2–6 months, depending on the recorder’s backlog. If you have requested HMM’s assistance with the recording of a deed and have not received your original recorded deed after 6 months, you may contact our office, and we will assist you in determining the status of the deed at the county recorder’s office.
Note: for any new property acquisitions, you can buy those properties directly in the name of the trust through escrow, using language something like in Examples 1, 2, or 3 above.
WARNING: Title Insurance & Homeowners Insurance:
It is recommended that you contact your title insurance company and homeowner’s insurance company in advance of transferring any real property to a trust to confirm that the insurance coverage will remain in effect after the transfer of your real property to the trust. The insurer may require additional actions (e.g., obtaining additional endorsements, adding the trustees of the trust [in their capacity as trustees] as insured parties, or obtaining a separate or new insurance policy) to continue coverage for properties in the trust.
WARNING: Mortgage/Secured Promissory Note:
If you own real property in addition to your residence, be aware that transfer of your non-residence property to a trust could trigger a “due-on-sale” clause in the mortgage agreement. It is recommended that you contact your mortgage lender in advance of transferring your non-residence real property to a trust, to comply with any additional actions required by your lender (e.g., obtaining the lender’s written permission) before you transfer your non-residence property to a trust.
Timeshares can be transferred to your Living Trust. The mechanism depends on the documentation you received when you bought the timeshare.
If a deed was recorded in the state where the timeshare exists, see the tip about “Real Property” above.
If you received an internal document from the timeshare organization (e.g., certificate of ownership), representing your interest, please contact the office of the timeshare to discuss transfer of your interest to a trust.
Burial plots may be able to be transferred to your Living Trust. Please contact the office of the cemetery or memorial park where the plot was purchased to discuss transfer of your interest to a trust.
U.S. savings bonds can be reissued in the name of the trust via application made on FS Form 1851, readily available online, and sent to the Treasury Retail Securities Services following the instructions that accompany the form.
To arrange for life insurance proceeds to be paid out to a trust as the beneficiary, simply request a change-of-beneficiary form from your insurance company and change the beneficiary, using language something like in the Example A or B above. Also, please read below in “EXTRA TIPS FOR TRUSTORS – The Big Question”, which has a subsection on Beneficiary Designations discussing some differences between naming the trust as a beneficiary versus naming an individual as beneficiary.
It is recommended that you speak with your insurance agent and request that the trust be named as an “additional insured” on all your insurance policies. The additional insured would read something like in Examples 1, 2, or 3 above.
Generally, it is possible to transfer a business interest (e.g., corporations, LLCs, Partnerships) to a trust. However, since each business has its own organizational parameters that may or may not permit transfer of an ownership interest, the business’ governing documents (e.g., Bylaws, Operating Agreements, Partnership Agreements, etc.) should be reviewed to ensure transfer is allowed. If it is allowed, documents should be prepared transferring the property from the current owner (i.e., you) to the trustee of the trust, using language something like in Examples 1, 2, or 3 above. This step will likely benefit from the assistance of an attorney.
Extra Tips For Trustors (trust creators)
Should I put “this” or “that” in my trust?
This is a common question. “Should I put “this” or “that” in my trust?” In response, think of this alternate question: how will my friends/family know who is supposed to inherit the “this” or “that”? There are 3 general ways to arrange who is entitled to your assets after you are gone:
- If the asset is in a trust, the trust “distribution” will determine who inherits the asset, and when they inherit it.
- If the asset already has a “transition plan” associated with it (e.g., the asset is already co-owned with another person; or it has a beneficiary designation), then the institution abides by that transition plan, regardless of whether you have a trust or a last will and testament (“will”).
- If the asset belongs in neither of the above categories, it is like a “financial orphan”, and will pass pursuant to the owner’s will, or by the applicable state law if there is now will.
So, should you put “this” or “that” in your trust? It is up to you. The asset need not be put in your trust, but there should be some mechanism in place to distribute the asset upon your death; however, there are a number of potential pitfalls involved in mechanisms 2 and 3 above. In brief:
- Co-owned assets can usually be spent or withdrawn by the co-owner (even though it’s really your money), even while you are alive.
- Co-owned assets are exposed to the liabilities of the named co-owner (e.g., their bankruptcy, their law suits, their divorces, their gambling addictions, their IRS woes, etc.).
- Co-owned assets belong to the named co-owner outright upon your death (even if you intended that the co-owner use the money to pay funeral expenses or to share with others). What the co-owner does with it after you are gone is entirely up to them, because it is legally their asset.
- Adding co-owners to your California real property could trigger property tax reassessments; and for any asset, adding a co-owner can trigger gift tax and capital gains tax issues (e.g., the loss to your beneficiaries of a valuable “step-up in basis” when you die). Ask your tax professional for more details.
- By leaving your name on the bank accounts, when you die, your beneficiaries are entitled to their inheritance atage 18 (this could be cause for concern for 18 year olds inheriting significant amounts of your hard-earned money).
- By leaving your name on the bank accounts, when you die, your beneficiaries are not entitled to their inheritance until age 18 (this could be unfortunate if they needed the money for legitimate purposes before turning 18).
- Compare to a trust: trusts are able to restrict the release of inheritances until ages higher than 18 (slowing down potential wastage), while permitting the trustee to access money for legitimate reasons (e.g., college or medical matters) prior to that higher age you selected. If your trust has such an age provision, it may be preferable to put accounts in the trust directly, or name the trust as the beneficiary of an account (for IRAs and tax deferred retirement plans, see above). The money would then be managed by your trustee until the intended beneficiary reaches the age you determined in advance. We recommend speaking to a financial advisor prior to adjusting beneficiaries, so you can be aware of the tax implications and the beneficiary’s withdrawal options when a trust is being named the beneficiary.
- By leaving your name on the bank accounts, if you become incapacitated, someone will need a power of attorney to access your money to help pay your bills. We have found that banks work more readily with a Successor Trustee of an account in the name of the trust than they will with a power of attorney of an account that is in your name alone.
- A will can direct your assets to your chosen beneficiaries, but wills do not avoid probate the way trusts do. If the “orphan assets” described above (see the tip about “Should I put ‘this’ or ‘that’ in my trust?”) are cumulatively worth more than $166,250.00, all the orphan assets are subject to probate.
If after mulling over the above explanations you still have a question about your particular scenario, please contact our office.
Let’s start with a quick primer on the difference between separate property and community property (this aspect of property is considered the “character” of the property). Generally speaking:
- Any property earned during a marriage belongs to “the community” (i.e., is “community property”), not to the individual who earned it (unless the married couple made other arrangements with a pre-nuptial or post-nuptial agreement).
- Any property owned by an individual prior to marriage is, generally, their separate property (unless the owner has commingled that property with the spouse’s or community’s property, or deliberately changed it to community property or to the separate property of the spouse).
- Any property inherited by a married person is the separate property of the married person, unless the inheriting spouse commingled that property with the other spouse’s separate property or with the community’s property, or deliberately changed it to that other type of property).
Before adding separate property to a joint trust, it is important to read the trust to see what it says about the character of property transferred to the trust. Did the spouses agree (by signing the trust document) that property added to the trust would retain its original separate or community character, or is there a different default presumption about the property? Generally, for the couple’s trusts prepared by Hart, Mieras & Morris, Inc., the presumption is that the property transferred to a joint trust will be deeemed community property unless it is otherwise identified as the separate property of one of the spouses. So, please be aware of your own trust’s treatment of the character or property added to the trust, and proceed accordingly.
Also note, generally a joint trust has 2 trustees who facilitate the management of the assets in the trust. If separate property should be added to such a trust, even if the character remains identified as separate for purposes of ownership, practically, the cooperation of both trustees is likely to be required for certain transactions. If the cooperation of the other trustee would be unduly burdensome, you may want to consider a separate trust for such separately owned property.
The Trustor may add or remove assets from a trust at will. If a Trustor needs assistance with funding a trust, the Trustor may retain the assistance of others (e.g., the bank, a broker, an attorney). However, it is not essential to report to an attorney after funding or removing assets from a trust. The important thing is to keep track for your own records. See the tip about “Keeping Track of What’s in the Trust.”
Trustors do well to keep track of what they have transferred to their trust. This can be accomplished by updating the “Exhibit A”, usually found a few pages after your signature page of the trust, if Hart, Mieras & Morris, Inc. prepared your trust. Other firms may identify this document as “Schedule A” or “Schedule of Assets”. Whatever the name, the purpose of this document is to summarize the assets that you have titled in the name of the trust. For more information about how to title various assets in the name of a trust, please refer to the prior sections about specific assets and how to transfer them to a trust.
Step 1: retitle the asset in the name of the trust (e.g., with the bank, the broker, the DMV, the county recorder – for real property).
Step 2: keep track on Exhibit A. Step 1 should happen first!
Typically, this Exhibit A does not need to be approved by an attorney or professional, nor does it need to be notarized. It simply serves as your “treasure map” for what’s in the trust, and will be very useful to the Successor Trustee whom you have appointed to finalize your affairs. You are welcome to prepare the list on a spread sheet or Word document, and swap your document for the initial copy provided with your trust. Update Exhibit A as often as there are changes to the assets in your trust (e.g., to delete accounts that have been closed or properties that have been sold; to add new accounts or purchases of assets that are titled in the name of the trust).
For a comprehensive list of ALL of your assets, both those in the trust and those not in the trust, you may want to add another page summarizing your non-trust assets. In any event, your Successor Trustees and beneficiaries will appreciate your thoughtfulness for making their responsibilities a little easier by providing current information about your trust and non-trust property.
Sharing your documents with others is a personal decision. There is no “right” or “wrong” answer. Perhaps you do not want to expose your choice of Successor Trustees or beneficiaries while you are still alive. You do not need to. You can simply inform your Successor Trustee of where you store your trust, will, and powers of attorney, for when the time comes (e.g., when you pass away, or should you become incapacitated) and they will need those documents to undertake their responsibilities. Therefore, you can keep the information private for now, or provide copies to interested parties now, as you prefer. We do recommend, however, that you provide your Successor Trustee with contact information for Hart, Mieras & Morris, Inc. since there are important legal steps to be taken by your Successor Trustee prior to distributing your assets. We would be glad to assist your Successor Trustee in complying with the law and the directions you have laid out in your trust.
In most cases, you are not required to take any particular actions by virtue of moving out of California, although it would be wise to consult with an attorney in the new state. The living trust created by Hart, Mieras & Morris, Inc. is enforceable in all 50 states; however, state tax laws are unique to each state. These differences in tax laws may affect the suitability of your current type of trust in the new state, especially for couples. Additionally when moving, you want to remember to put your new residence in the trust. See the tip about “Real Property (real estate).”
A Living Trust reports any income it receives on the income tax return of the trustor(s), while the trust is revocable. This usually remains true until the trustor(s) die or until someone other than the trustors is serving as the trustee of the trust. At that time, a new tax payer I.D. number (also referred to as an Employee Identification Number) is usually required by the IRS. An attorney or accountant can usually assist with acquiring this new number, if needed. If you have questions, contact your tax professional.
If the trust was created by only one individual, the Successor Trustee is well advised to seek legal assistance in determining what steps need to be taken regarding the trust. Some actions are time sensitive (from a legal-compliance standpoint), so it is wise to get legal advice soon (e.g., within a month or so) after the Trustor dies. We would be glad to assist the Successor Trustee in complying with the law and the directions in your trust.
If the trust was created by two individuals, the survivor of the two is well advised to seek legal assistance in determining what steps need to be taken regarding the trust. Jointly created trusts can have very different action steps depending on the type of joint trust. Some actions are time sensitive (from a legal-compliance standpoint) and some are time sensitive from a monetary standpoint. It is wise for the surviving trustor to get legal advice soon (e.g., within a month or so) after a spouse dies. We would be glad to speak with the survivor regarding compliance with the law and the directives in your trust.
Remember the purpose of a will (see the tip about “Wills” under “The Big Question” above). A will’s purpose is to distribute any “orphan assets” (see also “The Big Question” above, #3) that might exist after your passing. A will is important just in case you have an asset that was not in the trust, and that asset had no other mechanism for transference to a beneficiary. The wills prepared by HMM are generally “pour-over wills” which direct the orphan assets be distributed to the Living Trust. That is helpful, but, again, wills do not avoid probate. So, rather than relying on the will, it is advisable to be pro-active in funding your trust while you are living. Our hope is that the will is never needed.
No. A Living Trust (i.e., revocable trust) does not shield you from creditors. It does, however, save your beneficiaries from the time and expense of probate. If you need additional asset protection, you should consider insurance options (e.g., an umbrella policy) or possibly forming a business entity, depending on your needs and the source of the liability.
If you need additional assistance, please give us a call at 626-445-1212.