A revocable trust or living trust is an instrument created, as part of your overall estate plan, for the purpose of protecting your assets, including investments, during your lifetime. It can also allow for a smoother transition of said assets and investments to a chosen beneficiary after your death.
But not every asset or investment can or should be used to fund a revocable or living trust. Below are a few contenders, along with the specific processes and considerations to bear in mind for each.
Bank Accounts
Bank accounts, including checking, savings, and CDs, can be used to fund a revocable living trust. In order to avoid any penalties that may occur for early withdrawal, you should check with your bank before attempting to transfer an account or saving certificate. Your bank may require that you open a new account instead of changing the name on the existing account.
Corporate Stocks
Any corporate stocks or mutual fund shares issued in certificate form must be registered in the trustee’s name, and a new certificate must be issued. You will need to contact the broker who manages the account or the issuer of the financial instrument.
Bonds
Bonds must be re-registered in the name of the trustee, and a new bond must be issued. Most unregistered bonds can be converted into registered form in the name of the trustee. For unregistered bonds which cannot be converted into registered form, you must be able to prove in some other way that they have been transferred to the trustee.
Typically, this is done with a transfer document that lists the bearer securities being transferred and is retained by the trustee. Any new bonds purchased after you have established the revocable trust should be purchased in the name of the trustee, and the confirmation or other proof of purchase retained with the instrument to prove trustee ownership.
Tangible Assets
Tangible personal property includes personal effects such as jewelry, furniture, antiques, collectibles, artwork, as well as also motor vehicles, boats, and airplanes. Consult with an experienced Seattle estate planning attorney about the possibility of creating a pour-over will to have your executor transfer your vehicle and other tangible personal property into your trust at the time of your death.
This might require probate. However, the probate process should be a much simpler affair if it involves just a few assets moving into your trust.
Business Interests
Business interests can include shares of stock in a closely held corporation, general and limited partnership interests, and membership interests in limited liability companies. With partnerships, you should transfer your share to your living trust and transfer the ownership certificate to show the trust as the shareowner.
Some partnership agreements may prohibit transferring assets to living trusts, so you will want to consult a financial adviser or Seattle estate planning attorney before taking any action. In the case of a limited liability company (LLC), you will need approval from the majority of owners before they can transfer the interests in the company to their living trust.
Be sure to check any shareholders’ agreements, partnership agreements, or operating agreements for restrictions on transfers and for specific procedures that must be followed to retitle your shares or interests into your trust.
Real Estate
Transfers of real estate into a revocable living trust require recording a new deed in the name of the trust where the real estate is located. In cases where there is an existing mortgage on the property, there are federal protections in place to ensure that if a beneficiary inherits a home with a mortgage against it, the lender cannot call the loan due fully and immediately just because the original account holder is no longer living.
The beneficiary inherits the mortgage as well, meaning your trust would simply take over the mortgage payments if you transfer an encumbered property into it. Before initiating the transfer, you should contact the mortgage company to confirm that they will grant permission to add your trust as a responsible party on the mortgage.
Life Insurance
Though ownership of life insurance policies is not generally transferred to a revocable trust, the death benefits of such a policy can be made payable to your trustee. This is can be done by completing change-of-beneficiary forms from your insurance company.
All assets in the trust are considered your property and are thus counted as part of your estate’s worth. This includes life insurance proceeds, which are counted as part of your estate’s worth whether you list a direct beneficiary or list the trust.
It is possible to create a taxable situation should you reach the IRS threshold for taxable estates. In 2022, that amount is $12.06 million for an individual and $24.12 million for couples. The Washington threshold is $2.193 million per individual. Consult with a financial professional along with a Seattle estate planning attorney for further tax advice.
Find a Seattle estate planning attorney to help fund your revocable trust.
Setting up a revocable trust can be an integral part of your estate plan. However, for a revocable trust to provide you and your heirs with the benefits you seek, it is best to first consult with an estate planning attorney who is knowledgeable about how to fund them.
Our Seattle estate planning team has years of experience handling all aspects of estate planning, including revocable trusts. In addition, we work closely with financial professionals who we have handpicked to give you the most comprehensive tax advice specific to your situation. Call us today to get started.
