Transferring Assets Into Your Revocable Trust Agreement

By Michael J. Howell

As part of routine estate planning, many clients transfer ownership of all their assets into their revocable living trust agreement. This is normally done for disability and probate management purposes although it can also be  used for estate tax and  general financial management purposes.  This process of transferring assets is often referred to as trust funding or as funding your trust.

Technically to fund your trust, you transfer assets into the name of the trustee of the trust rather than to the trust as an entity.  Transferring to the trust as an entity can cause the transfer to fail; although, not in all circumstances.  However, it is not always clear when it will and when it will not fail; therefore, it is best to do it correctly and not to run the risk.

Assets such as life insurance do not have to have the ownership transferred but the beneficiary should be the trustee. This assumes that the owner and insured are the same person as the grantor or settlor (owner) of the trust.  If they are not the same person you should consult with either your CPA or an attorney experienced in estate and gift tax matters because there may be adverse tax consequences with such ownership.

With respect to annuities and Individual Retirement Accounts, the beneficiary designation on these should never be changed without the input of either your C.P.A., attorney or someone knowledgeable in these areas, otherwise, there can be severe tax consequences.
With respect to real estate, this is normally transferred by a deed which requires a real estate lawyer. It is never advisable to try this on your own.

With respect to stocks and bonds, ownership needs to be changed to the trustee of the revocable trust agreement. This is easier if the assets are already in a brokerage account because then it only requires one change and normally, your broker or investment adviser can handle it at little or no charge.

Bank accounts can also be transferred into the name of the trustee. In many cases either a brokerage account or similar account with a bank is used for all financial assets.

With respect to household and personal effects, we normally transfer these by a simple bill of sale which we prepare. The ownership of automobiles can be changed to the trustee at the highway department. The highway department is getting more of these requests than it has in the past and is now more familiar with processing them and is more efficient.

Please keep in mind that anytime you transfer the ownership of real estate, household items and personal effects or an automobile to a trust, you should let your insurance company know that you have changed the ownership to your revocable living trust agreement. They will need to note this on the policy. This may also be a good time to review your insurance coverage to make sure it is adequate.

Most of the above can be accomplished with relative ease; however, we have been having problems with closely held corporations and limited partnership interests. These types of interests are not normally traded on an established exchange and therefore cannot be handled by your broker. Many are very small operations and often there is no procedure at the corporate, partnership level or LLC lever to handle ownership changes. Normally we have to work with the closely held business, partnership or LLCs which takes time and is, quite frankly, much more expensive and time consuming than transferring any other asset.

Even with this additional time and cost, if you are trying to fully fund your trust, you should take the additional steps to have the title to any closely held stock or limited partnership interests changed to the trustee. In the long run it will save even more time and expense.

In order to avoid a full probate proceeding, substantially all your assets need to be in your trust or in other non-probate form. Basically our statute states that if there are assets of more than $25,000, less certain liens and encumbrances, in probate form then a full probate proceeding is required in order to have them transferred to the beneficiary of your estate.

If there is any real estate in probate form, then probate is required regardless of how much the property is worth. This is why it is important to include even timeshares.

If you are a member of a club or a resident of a retirement community which has a separate membership certificate, you should remember to transfer the ownership of your membership certificate to your trust also.

Please keep in mind that many of you are your own trustees and the procedures are relatively simple. For those of you who have corporate fiduciaries, they are familiar with these procedures and should not have a problem making transfers.
The reason you need to try to place all your assets into your revocable living trust agreement is because no matter how hard you try, there will probably be some assets which are part of your probate estate. Often there are refunds from the state and federal governments, insurance companies, magazine subscriptions and others which can add up to over $25,000. In most cases if there is an automobile, it can be worth more than $25,000 and may itself cause a full probate proceeding.

If substantially all your assets are in your trust, then we normally file the will for probate only. When compared to a full probate proceeding, this is a relatively simple procedure whereby we file your will for probate and do nothing else. It is the appointment of a personal representative which creates most of the time and expense of a probate administration. If there are assets other than real estate in probate form and the value is less than $25,000, we may be able to use a somewhat simplified affidavit procedure to transfer the assets after death.

Once you go over $25,000, you have to have a personal representative. Once a personal representative is appointed, they have to file inventories, accounting and many other documents as well as comply with certain statutory deadlines. These are the functions which produce the major cost and inconvenience of probate. Some of the procedures can be waived if all devises agree.

Having all your assets either in your trust or other non-probate form can reduce the cost and anguish associated with death and the administration of the estate. 

There is one thing to keep in mind. Even if there is no probate, there is still tax administration required in almost all situations. This requires filing and compiling information on income, estate and gift tax returns. This process itself is time consuming and expensive, and it helps if there is no probate proceeding to compound the problem.

If you need assistance funding your trust, please let us know. If you have partially or fully funded your trust, it is always a good idea to meet with us so that we can review what has been done.