How to Fund Your Living Trust: A Step-by-Step Guide for California Residents

How to Fund Your Living Trust: A Step-by-Step Guide for California Residents

Funding your living trust in California

Creating a living trust is a smart move for California residents who want to ensure their assets are managed and distributed according to their wishes without the hassle of probate. However, setting up the trust is only the first step. To make it effective, you need to fund your living trust by transferring your assets into the trust. Here’s a detailed guide on how to do just that.

Step 1: Transfer Real Estate

Transferring real estate into your living trust involves several steps:

  1. Prepare a New Deed: You need to prepare a new deed that transfers ownership from your name to the name of the trust. In California, this is typically a Grant Deed, but other states often use Quitclaim Deeds.
  2. Notarize the Deed: Sign the new deed in the presence of a notary public.
  3. Record the Deed: File the notarized deed with the county recorder’s office where the property is located. This step is crucial to make the transfer official.

Step 2: Transfer Bank Accounts

To transfer bank accounts into your living trust:

  1. Contact Your Bank: Inform your bank that you want to transfer your accounts into your living trust. They will provide the necessary forms and instructions.
  2. Provide Documentation: You must provide a Certification of Trust or a copy of the trust document.  The bank may have its own form they want you to fill out too, which is typically their version of a Certification of Trust, so use the Certification of Trust from your estate plan to fill theirs out.
  3. Tax ID Number:  The bank will ask you what the trust’s Taxpayer Identification Number is.  This sounds confusing, but it is typically just your Social Security Number.  In a marital trust, it is either spouse’s Social Security Number.
  4. Retitle Accounts: The bank will either retitle your existing accounts in the trust’s name or open new accounts in the trust’s name.  Generally retitling your existing accounts is preferable so that automatic deposits and payments are not disturbed.  Make this a customer service issue with the bank if they try to get you to open a new account.
  5. Update Beneficiaries: Ensure the trust is listed as the beneficiary for any payable-on-death accounts.  Be careful about this though, because it is an either/or choice: Either retitle bank accounts OR set the trust as beneficiary.

Step 3: Transfer Investment Accounts

For investment accounts, the process is similar but may involve additional steps:

  1. Contact Your Broker: Inform your brokerage firm that you want to transfer your investment accounts into your living trust.
  2. Complete Required Forms: Fill out any forms the brokerage requires to retitle the accounts.
  3. Provide Trust Documentation: Similar to bank accounts, you will need to provide a Certification of Trust or a copy of the trust document.
  4. Retitle Accounts: The brokerage will retitle your accounts in the name of the trust.

Step 4: Transfer Personal Property

Personal property, such as jewelry, art, and collectibles, can also be transferred into your living trust:

  1. Update Titles: For items like vehicles or boats that have titles, update the titles to reflect the trust as the new owner.
  2. Identify Recipients: If sentimental items or potential disagreements over their distribution exist, it’s advisable to identify them in the trust document and specify the intended recipient for each item.
  3. General Transfer Document: For tangible personal property without formal titles or deeds, such as clothing, furniture, and jewelry being passed down through generations, sign a general transfer document stating that the trustee of the trust now owns these items. Keep this document with the trust records.
  4. Create an Inventory: List all items you want to transfer into the trust, including sentimental items without formal titles or deeds like clothing, furniture, and family heirlooms.
  5. Create an Inventory of Valuable Items: Usually, the general transfer document works for most people’s tangible personal property, but you might consider specifically listing any valuable items you want to transfer into the trust, including artwork, jewelry, and sentimental items like family heirlooms.  Then prepare a signed and dated assignment of ownership document that transfers these items to the trust.

Step 5: Transfer Business Interests

If you have business interests, such as shares in a corporation or membership in an LLC, you can transfer these into your living trust:

  1. Review Business Agreements: Check any partnership agreements, operating agreements, or articles of incorporation for transfer restrictions.
  2. Prepare Transfer Documents: Prepare the necessary documents to transfer your business interests to the trust.
  3. Notarize and Record: Sign the documents in the presence of a notary and file them with the appropriate authorities.

Step 6: Designate the Trust as Beneficiary

For certain assets, it may be more practical to designate the trust as the beneficiary rather than transferring ownership:

  1. Retirement Accounts: For IRAs, 401(k)s, and other retirement accounts, be your beneficiary designations are up to date.  You normally name the beneficiaries directly, but sometimes you might consider designating the trust as the beneficiary. Talk to your broker or tax advisor about which method is right for you.
  2. Life Insurance Policies: Name the trust as the beneficiary of your life insurance policies.
  3. Payable-on-Death Accounts: Update the beneficiary designations for any payable-on-death accounts to the trust.

FAQ

Q: What happens if I don’t fund my living trust?
A: It will be empty and ineffective if you don’t fund your living trust. Your assets will still go through probate, defeating the purpose of creating the trust.

Q: Can I transfer my retirement accounts into my living trust?
A: Generally, it’s not advisable to transfer ownership of retirement accounts into a living trust due to potential tax implications. Instead, designate the trust as the beneficiary if you have younger beneficiaries who would not be able to manage the inheritance, or a special needs beneficiary whose inheritance must pass through the trust.  Or just designate the beneficiaries themselves.

Q: Can I fund my living trust independently, or should I seek professional assistance?
A: While you can fund your living trust on your own by following the necessary steps, seeking professional assistance can help ensure the process is done correctly and efficiently, especially if you have complex assets or specific estate planning needs.

Q: How often should I review my living trust?
A: It’s a good idea to review your living trust every three to five years or whenever there are significant changes in your life, such as marriage, divorce, or the birth of a child.

Q: Can I add new assets to my living trust after its creation?
A: Yes, you can add new assets to your living trust anytime. Just follow the same steps for transferring ownership as you did initially.

The Bottom Line

By following these steps, you can ensure that your living trust is adequately funded and will serve its intended purpose of managing and distributing your assets according to your wishes. If you have any questions or need assistance, please contact us. We specialize in setting up living trusts and are here to help with any related questions. Reach out to us to get started on securing your financial future.

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