How to Fund a Revocable Trust and Ensure Its Effectiveness
A revocable trust is a valuable estate planning tool that can provide numerous benefits, such as avoiding probate, offering privacy, and allowing for more control over the distribution of assets. However, simply creating the trust isn’t enough to make it effective. To fully utilize its benefits, you must fund it by transferring ownership of your assets into the trust.
Funding a revocable trust involves transferring legal ownership of your assets to the trust. While the process might seem overwhelming at first, it’s relatively straightforward once you understand the key steps. At Porter Law Firm in Mount Pleasant and Hilton Head, South Carolina, we can provide the necessary details to get your estate plan on the right track.
Why Funding Your Revocable Trust Matters
Before getting into the "how-to" of funding your trust, it’s important to understand why this process is so crucial. The primary benefit of a revocable trust is that it allows your assets to bypass the probate process, which can be time-consuming and costly. However, for this benefit to apply, the assets you want to avoid probate must be titled in the name of the trust.
Additionally, funding your trust allows your assets to be distributed according to your wishes upon your death. If assets aren’t properly included, they may not be distributed according to the terms of the trust, leaving your loved ones to deal with potential legal issues or confusion.
Types of Assets You Can Transfer to a Revocable Trust
Now that you understand why it’s important to fund your trust, let’s explore the various types of assets that can be transferred. Different assets have different rules and methods for being placed in a revocable trust, so it’s essential to understand the specifics of each one. Here's an overview of the key types of assets you should consider transferring:
Real Estate
Title transfer: The most common way to transfer real estate is by executing a deed that transfers ownership from you to your trust. This is known as a “deed of transfer” or a “quitclaim deed.”
Mortgage considerations: If there’s a mortgage on the property, you should check with your lender to make sure there are no restrictions or issues with transferring the property to your trust.
Once you’ve tackled real estate, the next most common asset people focus on is their financial accounts. Let’s take a closer look at how to handle your bank accounts and investments.
Bank Accounts
Adding the trust as a joint account holder: You can add the name of your trust as a joint account holder, which will give the trust control over the account.
Changing account titles: For checking or savings accounts, you’ll typically need to contact the bank and request the appropriate paperwork to change the title of the account to the name of your trust.
After bank accounts, you may want to move on to investments like stocks and bonds. These assets require a slightly different approach, which we’ll go over next.
Investments
Transfer of ownership: You’ll need to contact your brokerage firm and request a transfer of ownership forms to place your stocks, bonds, and other securities into the name of your trust.
Considerations for tax purposes: Make sure you understand the potential tax implications of transferring investment accounts to your trust, and consult a professional if necessary.
While investments might be straightforward, retirement accounts can be a bit trickier. Let’s take a closer look at how to handle these special accounts.
Retirement Accounts
Naming the trust as beneficiary: For retirement accounts, you generally don’t want to transfer the actual account to the trust. Instead, name the trust as the beneficiary of the account to make sure the assets pass as desired upon your death.
Potential tax consequences: Be aware that naming a trust as a beneficiary of your retirement accounts may trigger unwanted tax consequences for your heirs, so consult with an estate planning attorney before proceeding.
Finally, personal property, which is typically more accessible but still needs to be transferred to your trust, should be dealt with carefully. Let’s explore how to handle this.
Personal Property
Bill of sale or assignment: For personal property, you can create a bill of sale or assignment document that transfers ownership to the trust. Keep detailed records of the items transferred, especially for valuable items.
Special considerations for vehicles: In South Carolina, transferring vehicle ownership typically involves submitting paperwork to the Department of Motor Vehicles to update the title to the trust.
Steps to Fund a Revocable Trust
Now that we’ve covered the types of assets you can transfer, it’s time to break down the step-by-step process of funding your revocable trust. While the process will vary depending on the asset type, the following general steps will guide you through the process:
Review your trust document: Before transferring assets, review your revocable trust document to make sure it’s up to date and reflects your current wishes. You may need to amend or restate the trust if there have been significant changes in your life, such as marriage, divorce, or the birth of children.
Gather your asset information: Create a detailed list of all the assets you plan to transfer into the trust. This includes deeds to property, account numbers for financial accounts, titles for vehicles, and other relevant documentation. Having everything organized will make the transfer process much easier.
Once you’ve got your trust document in order and have gathered the necessary information, it’s time to move on to transferring specific types of assets. Here’s how you can go about it:
Transfer real estate: As mentioned earlier, transferring real estate involves executing a deed that transfers ownership from you to your trust. You’ll need to file this deed with the county clerk’s office where the property is located.
Update bank and investment accounts: Contact your bank or financial institution and request the necessary forms to transfer ownership of your accounts into the trust. This may include completing a form to update the title on checking or savings accounts and transferring ownership of investment accounts to the trust.
With your real estate, bank accounts, and investments taken care of, it’s time to move on to personal property. Let’s look at how to handle those transfers.
Transfer ownership of personal property: For personal property, you’ll typically need to create a bill of sale or assignment document that transfers ownership to the trust. Make sure to include a detailed description of each item being transferred.
Name the trust as a beneficiary of retirement accounts: Instead of transferring the actual retirement accounts to the trust, you’ll name the trust as the beneficiary of each account. This allows the assets in the account to pass to your heirs according to the terms of the trust.
Finally, make sure you consult professionals as needed. Having an estate planning attorney can save you from costly mistakes, so don’t skip this step.
Common Mistakes to Avoid When Funding a Revocable Trust
While funding a revocable trust may seem straightforward, there are common mistakes that people often make during this process. Avoiding these errors can help make sure your trust works as intended and that your loved ones don’t encounter problems down the line:
Not transferring all assets: Make sure you transfer every asset that you want to be included in the trust. If assets are left out, they could still be subject to probate or distributed in a way you didn’t intend.
Forgetting to update beneficiary designations: Even if you’ve transferred ownership of your assets to your trust, it’s important to review and update beneficiary designations for your retirement accounts, life insurance policies, and other financial accounts. As you review your beneficiary designations, remember to regularly review and update your trust as well.
Failing to review and update your trust: Periodically review your trust to make sure it still reflects your current wishes. Life events such as marriage, divorce, the birth of children, or the acquisition of new assets may require updates to your trust.
Lastly, remember to seek professional guidance to avoid errors that could cause problems later.
Contact Us Today
Funding your revocable trust is an essential step in making sure it works as intended. With the right steps, your trust can provide peace of mind for you and your loved ones. Consult with professionals at Porter Law Firm in Mount Pleasant, Charleston, Summerville, or Hilton Head, South Carolina, when needed to make sure your estate plan is as effective as possible.
