Wood Law offers all clients a complimentary power of attorney and advance health care directive for their children who turn 18 years of age, so please don’t hesitate to e-mail me directly if you would like your child to have these important forms.
A trust avoids probate, but an empty trust does not. What do I mean by that? You have probably heard me say that a trust is like a bucket and you need to fill it with your assets for it to avoid probate. Retitling your assets to your trust is referred to as “funding” your trust. In this newsletter, I’ll explain more about the funding process as well as which assets to retitle into the trust.
What is “funding” my trust?
Funding your trust is the process of transferring your assets from you to your trust. To do this, you physically change the titles of your assets from your individual name (or joint names, if married) to the name of your trust. For example, Stephen and Jana Wood retitle their assets to the name of their trust, the “Wood Trust dated May 1, 2020”.
Who controls the assets in my trust?
The trustee you name will control the assets in your trust. Most likely, you have named yourself as trustee, so you will still have complete control and it will be business as usual. One of the key benefits of a revocable living trust is that you can continue to buy and sell assets just as you do now. You can also remove assets from your living trust should you ever decide to do so. Adding assets and removing assets from your trust does not require a change to your trust document.
Why is funding my trust so important?
If you have signed your living trust document but haven’t changed titles to your assets, you may not avoid probate. Under current law, if you have more than $166,250 in combined assets that is not titled in your living trust, a probate will be necessary to transfer those assets to your trust upon your passing. Please note that this amount does not count retirement accounts and life insurance with beneficiary designations.
What happens if I forget to transfer an asset?
Along with your trust, you have a “pour over will” that acts like a safety net. When you die, the will “catches” any forgotten asset and sends it to your trust. As previously mentioned, if the combined assets outside of your trust total more than $166,250, then those assets will likely go through probate first, but then it can be distributed according to the instructions in your trust.
Who is responsible for funding my trust?
You are ultimately responsible for making sure all of your appropriate assets are transferred to your trust. At Wood Law, we make sure to retitle your real property (i.e., home and rental property) to your trust and we contact your financial advisor to retitle any non-retirement accounts to your trust. However, you will need to go to the bank to retitle any other accounts to your trust.
How difficult is the funding process?
It’s not difficult, but it will take some time. Because living trusts are now so widely used, you should meet with little or no resistance when transferring your assets. Most asset retitling can be handled by computer, mail or telephone.
Some institutions will want to see proof that your trust exists. To satisfy them, you will need to show them your certification of trust. This is a shortened version of your trust that verifies your trust’s existence, explains the powers given to the trustee and identifies the trustees, but it does not reveal any information about your assets, your beneficiaries and their inheritances.
While the process isn’t difficult, it’s easy to get sidetracked or procrastinate. Just make funding your trust a priority and keep going until you’re finished. Make a list of your assets, their values and locations, then start with the most valuable ones and work your way down. Remember why you are doing this, and look forward to the peace of mind you’ll have when the funding of your trust is complete.
Which assets should I put in my trust?
The general idea is that all of your assets should be in your trust except for vehicles, life insurance and retirement accounts. For life insurance and retirement accounts, you will need to make sure you have beneficiary designations completed. You can name your trust as the beneficiary of life insurance policies, but be careful when naming the trust as beneficiary of retirement accounts
Need some help?
I’m here to make sure your estate plan is successful, so please don’t hesitate to contact me with any funding questions that you have!
-A portion of this article was taken from https://www.estateplanning.com/Understanding-Funding-Your-Living-Trust/
If you’re at home and have some down time, I invite you to check out my YouTube channel that has numerous videos on California Estate Planning. If there is a topic that you want to learn more about, please let me know and I will add another video!
Here is a link to the Wood Law YouTube channel