Everyone knows that a race car without fuel is simply a lawn ornament – a very expensive lawn ornament, but still a lawn ornament. Only with fuel, fresh tires, and oil is the race car ready to tear up the track. What is less understood is that your living trust without fuel is simply a coffee table decoration, and not a very attractive one at that. How do you fuel your living trust?
Your Trust Property Exhibit
Odds are, your attorney spent a fair amount of time going over your assets with you, and preparing a detailed exhibit that sits in the back of your trust. This list is helpful in proving your intent to have your trust own these assets. After your trust is completed, you will likely have many changes to this list over your lifetime. Keeping the exhibit current is something you can easily do by printing off a new Exhibit with a current list. Keep in mind that this list is the least important part of fueling your living trust.
The real work is actually changing the title to assets into the trust. Some attorneys go the extra mile in preparing documents to help you make those changes. These title changes are what fuels your trust. Without the change in title, your assets are exposed to the probate process – something you definitely want to avoid, and probably your key reason for preparing the trust in the first place.
Your real estate is transferred into your trust with a Trust Transfer Deed. There are plenty of ways to mess this up, resulting in “minor” inconveniences like a reappraisal on your tax bill to the title company being unable to issue title insurance. This is definitely something you should do on your own. Additionally, before transferring the property into the trust, the way you hold title can be adjusted to give you the best tax treatment.
Bank accounts have an account holder, and the statements they send you every month tells you who is on the account. Adding the bank account to your trust enables the bank account to be included in your overall estate plan, and gives your successor trustee the ability to step into your shoes in the event of your incapacity.
Typically, life insurance is left directly to an individual. There are good tax reasons as well as practical reasons to make the payments directly. However, there are exceptions, particularly when you have minor children for whom the money is intended. You have several options for your young children, but I believe naming the trustee of your living trust is the best approach. Just remember to change that designation when they are old enough to take the money directly!
Because of the complex rules and regulations for retirement plans, putting them into your regular living trust is actually a bad idea. It is quite probable that if you do that, you’ll prevent your heirs from being able to “stretch” the retirement account payments over their lifetime. That could cost them thousands in potential tax free growth in a retirement plan. If you want to help preserve your heir’s ability to “stretch” out the payments, and provide creditor protection for your IRA or other retirement account, check out the IRA Trust.
While personal property doesn’t have title, any assets of high value, like artwork or antiques should be listed specifically in the trust exhibit. Additionally, your estate plan should include a general declaration of ownership of personal property by the trust.
Keeping Up With Changes
Where you live, the place you bank, and the things you own are likely to change the fastest over anything else in your estate plan. If you make sure that any new account you open, or new property you purchase in titled in the trust, you’ll find your trust is fully fueled and ready to go when the time comes.
Photo by Julien REBOULET