One of the most common mistakes after completing your estate plan with your attorney is forgetting to transfer assets into your revocable trust.
Assets that are titled in the name of your trust, whether that retitling happens during your lifetime or upon death, will not need to go through the probate process to be retitled. Assets that are owned jointly with a surviving party, and assets that name a living beneficiary directly on the account, will also not need to be probated. Any assets that are still in your individual name at the time of your death will have to go through the probate court system in the state where they are located. Retitling accounts and naming beneficiary designations after the revocable trust is created is often the responsibility of the client, to be undertaken with guidance from their attorney.
There are many types of trusts that can be created for different purposes. This article focuses on trust funding for revocable trusts created primarily for the purpose of avoiding probate and maintaining post-death distribution control. As the name suggests, a revocable trust may be changed or revoked so long as the settlor of the trust has the capacity to do so.
What assets should I remember to transfer to a trust?
Your attorney will advise you as to which assets should be transferred to your trust. Examples of assets that people commonly forget to retitle to their trust include:
- Bank accounts.
- Safe deposit boxes.
- Individual securities.
- Brokerage accounts.
- Mutual funds.
- Closely held business interests or stock.
- Real estate and related assets (including vacation property, land contracts, mortgages, leases, gas/oil/mineral interests, promissory notes, etc.).
- Art, antiques, collectibles and other important items of personal property – since these don’t usually have titles, you may be able to use a bill of sale to transfer these assets to the trust if that is desired.
Remember that you have an option to transfer your home or other real estate to your trust at your death (without going through probate) using a lady bird deed – see our article, ”Ladybird Deeds – A Michigan Planning Technique,” for more information on this option.
Many of the assets above, such as checking, savings, and other financial accounts, also offer the option to use a beneficiary designation, or a transfer on death (TOD) or a payable on death (POD) designation, to automatically transfer the account(s) or the assets to one or more beneficiaries upon the owner’s death, without changing the name of the account itself. The benefit of naming the trust on a beneficiary designation is that all assets will flow through the trust and be subject to the various contingencies set forth therein, capturing the careful planning of your attorney.
How Should I Refer to My Trust When Retitling Assets?
The trust agreement will list the name of the trust, and trusts are often named after the settlor (i.e., the person who created the trust). Further, most revocable trusts are initially trusteed by the settlor during settlor’s lifetime. So, if Jane Smith, settlor and initial trustee of the “Jane Smith Trust, dated October 1, 2022,” wished to retitle her bank account to the trust, she would list the following as the account owner:
Jane Smith, or her successor, as Trustee of the Jane Smith Trust, dated October 1, 2022.
What Assets May be More Difficult to Transfer to a Trust?
- Credit Union Accounts – not all credit unions permit accounts to be held by trusts.
- Certificates of Deposit – transferring a CD may be considered a premature surrender, resulting in financial penalty.
What Assets Should You Generally not Transfer to a Revocable Trust?
- Motor vehicles with a value of up to $60,000 and watercraft with a value up to $100,000, as these don’t go through probate.
- Life Insurance policies that insure you (in some circumstances a trust could be a beneficiary of the policy.)
- Closely held stock or other business interests that are governed by an operating agreement or LLC agreement that prohibits such a transfer.
- IRAs and Qualified Plans – talk with your attorney about how the SECURE act would affect this (in some circumstances a trust could be a beneficiary of the plan or account).
- Annuities, endowment policies and deferred compensation agreements (the underlying contract will determine whether naming the trust is prudent – your attorney can advise.)
As you close out this year and start planning for next year, take stock of what you have acquired during the year. Should any acquisitions be titled into the trust? Regular review of your trust(s) and asset titling is a critical part of estate planning. Contact your Warner attorney or Haley Clough for help with titling assets into your trust or appropriately using beneficiary or POD/TOD designations.
