by Terrie O'Donnell
Creating a living revocable trust is a powerful estate planning tool that allows individuals to maintain control over their assets during their lifetime and ensure seamless asset distribution after passing. However, it is crucial to understand that more than merely listing your assets on a trust schedule is required. Changing the asset's title or designating the trust as the beneficiary is necessary to properly fund your living revocable trust. This article will explore why funding your trust goes beyond a mere list and the importance of completing the process for various asset types.
Understanding Trust Funding
Funding a living revocable trust involves transferring ownership or designating the trust as the beneficiary of your assets. This step ensures that the trust legally holds the assets and is governed by its terms. Merely listing assets on a schedule may provide an overview, but it does not establish the necessary legal framework for the trust to control and distribute those assets according to your wishes.
Real Estate and Trust Funding
For many individuals, real estate makes up a substantial part of their overall net worth, making it vital to properly fund these properties into a living revocable trust. The funding process requires executing a new deed to officially transfer the real estate title from your individual ownership into the name of the trust itself. This re-titling formally changes the legal owner of record from you personally to the trust as its own entity. Executing the new deed to transfer the real estate title into the trust's name is the essential step that places your property under the legal control, governance, and oversight of the living revocable trust.
One common concern for Texas homeowners is the potential loss of beneficial tax exemptions like homestead, over-65, or others when transferring real estate into a revocable trust. However, properly transferring your home into a qualified revocable trust allowable under Texas law does not cause you to lose any existing exemptions. If you continue using the transferred home as your principal residence, exemptions like a homestead, over-65, disabled veteran, etc., remain intact after the transfer.
Funding real estate into your trust helps avoid the probate process, streamlines asset management during your lifetime, and ensures a smooth ownership transition to chosen beneficiaries upon passing. Without this funding step, your real estate would remain in your individual name, subject to probate after death.
Financial Accounts and Trust Funding
Checking, savings, investment accounts, and other financial holdings should also be funded into your living revocable trust by updating the account ownership or beneficiary designation to the trust's name. Funding these accounts subjects the assets to the trust's distribution and administration provisions. Failing to fund can lead to access issues during incapacity and delays or complexities in distributing assets after death.
Failing to fund financial accounts like checking, savings, and investments into the trust by updating the ownership puts you at risk of account access issues if you become incapacitated. To ensure a trustee or successor can manage and access your accounts on your behalf during incapacity, it is critical to have those accounts officially re-titled in the name of the living revocable trust itself.
Stocks, Bonds, and Trust Funding
Investment holdings like stocks, bonds, and securities must be re-titled or have beneficiaries updated to your living revocable trust by re-registering the investments in the trust's name. As with financial accounts, this ensures the investments are controlled by the trust's established terms rather than going through probate uncertainties.
Business Interests and Trust Funding
Funding any ownership interests or company shares into the living revocable trust is crucial for business owners. This may involve updating corporate records to assign or transfer ownership to the trust. Funding business assets into the trust provides a clear plan for ownership transition and business continuity if you become incapacitated or pass away, avoiding potential challenges or disruptions.
The Importance of Proper Funding
While creating the living revocable trust is an essential first step, the funding process that formally transitions legal asset ownership is what truly activates the trust's benefits aligned with your wishes for those assets. Simply listing assets owned carries no legal weight for the trust to control or distribute per its terms. Substantial risks around asset distribution remain if funding steps are skipped.
Though funding requires additional effort beyond listing assets, taking this critical step provides peace of mind that your plan will be properly executed according to your wishes.
This article by Certified Paralegal Terrie O'Donnell has been reviewed and approved by Brandon L. McGee, Attorney at the McGee Law Firm.