I write a lot about the importance of creating a revocable living trust as a way to protect your assets during your life and as a way to ensure that your loved ones are able to enjoy the property after you are no longer with them. Today, let’s explore how to link your assets with a living trust. Linking your assets to the trust is also known as funding your trust. The bottom line is you want to have your trust and your assets working together.
The first step in creating a trust is figuring out what your needs are. Together, we will discuss your goals for your family and your property, and go over any questions you might have. Then, I will help you create a trust document. Once the trust is drafted, we can begin linking your assets to the trust.
You don’t want to drag your feet when it comes to linking your assets to your trust. If you become incapacitated or die before the linking is complete, probate will be the only option available. Since most people put trusts together, in part to avoid probate, this would be a real shame.
Types of Property That Should be Linked Into Your Trust
The trust works best when you have linked all of your assets to it. The process of placing your property into a trust will be dependent on what type of property it is.
Retirement Accounts–401K’s, IRAs, 403b’s, 457 Deferred Compensation
All of your retirement accounts come with a beneficiary designation. For instance, if you are married, your spouse should be the primary beneficiary of these retirement accounts. When you open these accounts, you are encouraged to name a beneficiary.
Once you have a trust, you need to work with the beneficiary forms again. If you are married, you still name your spouse as the primary beneficiary. Then you would name the trust as the secondary beneficiary. If you are single, you would name the trust as the primary beneficiary.
Since there are some tax ramifications to naming a trust vs. non-spouse individuals as the beneficiary, you may want to discuss this decision with an accountant or financial advisor.
ADD A NEW CATEGORY FOR FINANCIAL ACCOUNTS
You may or may not know that financial accounts, investment, bank and credit union, can all be beneficiary designated. If your account is a joint account with a spouse, you would name the trust as the sole beneficiary. If your account is in your name only, you would name the trust as the sole beneficiary or your spouse as the primary beneficiary and the trust as the secondary beneficiary.
It used to be that you would put these financial accounts actually in the name of the trust. But now, unless you are opening brand new accounts, this is rare.
ADD A NEW CATEGORY FOR LIFE INSURANCE
As with the retirement accounts, you need to work with the life insurance beneficiary form again. If you are married, you still name your spouse as the primary beneficiary. Then you would name the trust as the secondary beneficiary. If you are single, you would name the trust as the primary beneficiary.
Transferring your real estate into a trust requires a deed transfer. In other words, you will need to create a deed listing you as a grantor, and the trust as the grantee. Because you’re not selling the property, you won’t have to pay a transfer tax. However, you will need to ensure that the deed is recorded with the County Recorder.
Similarly to real property, if you want the trust to hold any vehicles, you will also need to transfer title. The Arizona MVD will require that you complete vehicle transfer paperwork. Alternatively, you can name the trust as the beneficiary of the vehicle when you pass away, which will allow the car to pass directly into the trust without going through paperwork and avoid probate.
When you have a trust, you put your personal belongings into it with a form that says exactly that. You can say who gets those personal belongings and what happens to belongings that are unwanted.
You can also make a list of specific items to go to specific people. So long as it is signed and dated, the list is valid.
Administering Your Trust
In addition to creating and funding it, you will also need to name a trustee of your trust who is in charge of administering it. You are the initial trustee, but you should also name one or more successor trustees, who are willing and able to take over the responsibility after you are no longer capable of this task.
You can do whatever you want with the trust and all of your assets. However, once you have passed away, property linked to the trust can only be used for the benefit of all named beneficiaries. It’s not a private bank account for the successor trustee. When you name successor trustees, you should discuss these responsibilities with them and make sure they understand their job under the trust document.
Benefits of Trusts
There are a number of benefits to linking your property to a revocable living trust, including that you will avoid probate, which is the court process that transfers property after you die. This can save your loved ones both money and time. Additionally, it will keep your affairs out of public court records.
Finally, creating a trust will give you the peace of mind that your family will be well taken care of after you are no longer with them. It gives you the opportunity to say how you want your property distributed, so you don’t have to worry about it down the road.
This article does not contain legal advice. If you have questions about your family’s living trust or want to discuss other estate planning documents, please contact me today to set up an appointment.