Vital “Step 2″ of the Living Trust Process
November 12, 2007
I’ve published posts on the overall scheme in regards to revocable living trusts (Part I and Part II), but the issue of funding your living trust is so important that it warrants a post of it’s own.
It’s essential to remember that setting up your living trust is a two-step process. Step #1 is having the document prepared and formally executing it. Step #2 is funding it. Too many clients complete Step #1 and think that the process is over when they are really only halfway done. If you do not complete Step #2 then your estate will have to go through probate, which would obviously be a shame since the main reason for setting up a living trust is to avoid probate.
In regards to your real estate, your attorney should prepare a “quitclaim deed to trust” for you to sign which will transfer ownership of your real estate to your living trust, thereby funding the trust with your real estate. This normally takes place at the same time that you execute the trust itself.
As far a bank and investments accounts go, you will usually just need to fill out and sign a one-page document. Again, just like with the real estate, you are changing the title to the account so that the records of the financial institution indicate that your trust is now, technically, the owner of the account.
Please note that anything that has a designated beneficiary (life insurance, qualified retirement accounts, annuities, etc.) are already set up to avoid probate, regardless of whether you have a living trust. But it is generally a good idea to name your trust as the beneficiary of these assets, especially if you are a married couple and your attorney has set up credit shelter planning in your trusts to address estate tax concerns or if you have set up trusts for children in your living trust. Be sure to check with your attorney. Again, remember that this would be a change of beneficiary, not a change of ownership. Closing one of these accounts out and opening a new one in the name of your trust might trigger unnecessary penalties and taxes.
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