Funding a living trust refers to transferring assets into the trust. If a trust is a box then funding the trust means putting assets into the box. For assets that are titled, such as real estate, accounts, stocks and bonds, the proper way to put those assets into the trust is to change the title documentation for the asset.
Now, it is not exactly correct to say that a trust holds title to the assets. Actually, it is the trustee of the trust who holds title. Thus, to open a trust bank account, the account would be opened in the name of the trustee or trustees, as trustees. As an example, if Jane Brown opens a bank account for her revocable trust, the title of the account might be as follows: Jane Brown, trustee of the Jane Brown Living Trust, dated March 31, 2011.
Often no harm is done in leaving bank accounts out of the trust. In California, up to a total of $100,000 can be held outside of the trust without having to go through probate. So a checking account with say $5,000 in it would not be at risk of requiring a formal probate, unless that $5,000 was enough combined with other non-trust assets to push the total over $100,000. In addition, trusts often provide for management in the case of the incapacity of the trustee, but those provisions would not be applicable to non-trust assets. For these reasons, it is preferred to transfer all bank accounts, CDs and money market accounts to the trust.
The trustees and their successors in trust should be made the primary beneficiary of life insurance policies. As with bank accounts, changing the beneficiary of the insurance policy is not always done, because life insurance policy proceeds still avoid probate as long as the policy names individuals as beneficiaries. The reason to name the trust as the beneficiary is thus not to avoid probate but to get the benefit of the other trust provisions. For example, the trust can provide that the trustee will hold the share of a minor child and apply the income and principal for the minor’s benefit until the child becomes old enough to manage the money on his own. Those provisions would not apply to non-trust assets.
Real estate is what makes the creation and funding of living trusts crucial in California. It is almost a certainty that real estate left out of a trust will require a formal probate. Putting real estate into a trust requires executing a new deed transferring the assets to the trustees of the new trust. To go back to the Jane Brown example, a new deed would be executed in which Jane Brown, a single woman, grants to Jane Brown, trustee of the Jane Brown Living Trust, dated March 31, 2011. The new deed needs a legal description of the property and it should be recorded in the County Recorder’s office, along with a Preliminary Change of Ownership Report.
So far, we have not discussed automobiles because, in California, automobiles are exempt from probate. The decedent’s automobiles can be transferred to the trustee simply by using a California DMV form.
Retirement accounts, such as IRAs and 401ks, are a little more complicated. They will be discussed, along with stocks and bonds, in the next posting.
In the meantime, remember, a trust does not serve its purpose unless it is funded.