How to Properly Fund a Revocable Trust

A revocable trust is a flexible legal arrangement designed to hold assets for a beneficiary, which the grantor, or creator, can modify or dissolve during their lifetime. While establishing a revocable trust is a foundational step in estate planning, its effectiveness hinges entirely on a subsequent, often overlooked, process: funding the trust. Funding involves formally transferring ownership of assets from an individual’s name into the name of the trust. This crucial step ensures that the trust, rather than the individual, legally owns the assets, enabling them to bypass probate and be managed according to the trust’s terms.

Understanding the Funding Process

A revocable trust cannot achieve its goals, such as avoiding probate, unless properly funded. Unfunded assets remain in the individual’s name, subject to probate.

To begin, compile a list of all assets, including real estate, bank accounts, investment portfolios, vehicles, business interests, tangible personal property, life insurance policies, and retirement accounts.

The trust document provides instructions on how assets should be titled and lists intended assets. Reviewing it helps understand the trust’s full legal name and identify the trustee. Assets are typically retitled to reflect trust ownership, following a convention like “John Doe, Trustee of The John Doe Revocable Trust dated [Date].” Use the exact legal name for proper transfer. Most assets transfer into trust ownership, but some, like life insurance and retirement accounts, are funded by changing beneficiary designations to the trust.

Transferring Real Estate

Transferring real property into a revocable trust requires specific legal actions to re-title the asset. A new deed (e.g., quitclaim, warranty, or trust transfer deed) must be prepared, with the type often depending on local practices. This deed must list current owner(s) as grantor(s), provide the property’s legal description, and name the trust as the new grantee, using its exact legal name.

Once prepared, owner(s) must sign the new deed before a notary. The signed and notarized deed then needs to be recorded with the County Recorder’s Office where the property is located. Recording fees vary, and some states may impose additional transfer taxes based on property value.

Existing mortgages require consideration. Federal law, the Garn-St. Germain Depository Institutions Act of 1982, generally prevents lenders from calling loans due when property transfers to a revocable trust where the borrower remains a beneficiary. Inform the lender of the transfer. Homeowners should verify that transferring the property does not jeopardize homestead tax exemptions or property tax benefits. Preserving these exemptions requires specific language in the trust document and new deed, confirming homestead status and the grantor’s continued right to occupy it.

Transferring Financial Accounts

Moving financial accounts into a revocable trust involves coordination with financial institutions. For bank accounts, the process typically entails contacting the bank directly. Account holders can open a new account in the trust’s name or re-title an existing personal account. Required documentation generally includes the trust document or a certificate of trust, and trustee identification. After transfer, update any direct deposits, automatic payments, or recurring transfers linked to the account.

Brokerage accounts, which hold investments such as stocks, bonds, and mutual funds, follow a similar re-titling process. Account holders should contact their brokerage firm and request the necessary forms to transfer existing investment accounts into the trust’s name. This will also require submitting the trust document or a certificate of trust, along with the trustee’s identification and any specific transfer forms provided by the firm. While re-titling generally does not trigger capital gains taxes, selling and repurchasing assets within the account would, so clients should confirm the nature of the transfer with their advisor. Financial institutions typically have specific procedures and forms for these transfers, and clear communication of the trust’s full legal name is paramount to ensure accurate titling.

Addressing Other Assets

A range of other assets can also be transferred to a revocable trust, each with its own specific procedures. For vehicles, including cars, boats, and recreational vehicles, the re-titling process typically involves the Department of Motor Vehicles (DMV) or the equivalent state agency. This usually requires the original title, the trust document or a certificate of trust, and an application for a new title listing the trust as the owner, with potential fees and, in some cases, inspections. While transferring vehicles to a trust can avoid probate, some states offer simplified alternatives like transfer-on-death (TOD) designations, which may be less administratively burdensome.

Business interests, such as those in Limited Liability Companies (LLCs), partnerships, or corporations, often require a review of the entity’s governing documents, including operating agreements, partnership agreements, or corporate bylaws. These documents may contain restrictions on transferability or require consent from other owners or partners. Formal assignment of interest documents, such as an Assignment of Membership Interest Agreement for LLCs, are typically necessary to legally transfer ownership to the trust.

Tangible personal property, such as jewelry, art, furniture, and collectibles, can be transferred to the trust through a general assignment of personal property document. This legal document formally transfers ownership of specified items or all personal property to the trust without requiring physical movement of the items themselves. Life insurance policies are typically funded by changing the beneficiary designation to the trust, rather than transferring policy ownership. This ensures the death benefit is paid to the trust, allowing for controlled distribution according to the trust’s terms, though it is important to review the trust’s provisions regarding creditor payments, as some trust language could inadvertently expose policy proceeds to claims.

Retirement accounts, including IRAs and 401(k)s, should generally not be directly titled in the name of the trust due to significant tax implications. Instead, the trust is typically named as the beneficiary, either as the primary or contingent beneficiary. Naming a trust as beneficiary can offer control over distributions and asset protection for beneficiaries. However, trusts are subject to compressed tax brackets, and the SECURE Act generally mandates that most inherited retirement accounts be fully distributed within 10 years when a trust inherits them. Consulting with a financial advisor or tax professional is strongly advised due to the complexities of retirement account beneficiary rules and their potential tax consequences.