Erin L. Nunes, Esq., Managing Partner
A Revocable Living Trust (RLT) is a powerful estate planning tool, offering benefits like avoiding probate, maintaining privacy, and providing for seamless asset management in case of incapacity. However, the true power of an RLT lies not just in its creation, but in its proper funding. An unfunded or improperly funded RLT can undermine your estate planning goals and leave your loved ones facing the very probate process you sought to avoid.
What Does “Funding” an RLT Mean?
Funding an RLT means formally transferring ownership of your assets from your individual name into the name of your trust. Think of your RLT as a new “basket” to hold your assets. If assets aren’t placed into the basket, they won’t be governed by the trust’s terms upon your death or incapacity .
Why is Funding So Crucial?
- Avoid Probate: This is often the primary reason clients establish an RLT. Assets properly titled in the name of your trust avoid the public, often lengthy, and sometimes costly probate process. If assets remain in your individual name, they will likely need to go through probate, even if you have a “pour-over will” directing them to your trust.
- Privacy: Probate is a public process. An RLT, when fully funded, allows for the private distribution of your assets, keeping your financial affairs out of public record.
- Incapacity Planning: If you become incapacitated, your successor trustee can step in immediately to manage trust-owned assets without the need for court intervention (such as a conservatorship or guardianship proceeding).
- Seamless Transition: Funding ensures a smooth and efficient transfer of assets to your beneficiaries according to your wishes, without delays or complications.
Key Steps and Considerations for Funding Your RLT:
- Identify All Assets: Begin by creating a comprehensive list of all your assets. This includes:
- Real Estate: Your primary residence, vacation homes, rental properties, and any land.
- Bank Accounts: Checking, savings, money market accounts, and certificates of deposit (CDs).
- Investment Accounts: Brokerage accounts, stocks, bonds, mutual funds, and other securities.
- Business Interests: Ownership in privately held businesses, LLCs, partnerships, or corporations.
- Tangible Personal Property: High-value items like artwork, jewelry, collectibles, and vehicles (though vehicles may have specific state titling considerations).
- Other Assets: Notes receivable, intellectual property, and safe deposit box contents.
Retitle Real Estate:
This is typically done by preparing and recording a new deed that transfers ownership from your individual name to the name of your trust.
It’s essential to work with an attorney experienced in real estate transfers to ensure the deed is drafted correctly and recorded in the proper county. A “Certificate of Trust” or “Abstract of Trust” – a condensed version of your trust document that provides essential information without revealing all the private details will also need to be recorded in the appropriate registry of deeds.
After retitling, remember to update your homeowner’s insurance to reflect the trust as an insured party and file any necessary applications for property tax exemptions (like homestead exemptions).
Transfer Financial Accounts:
For bank and brokerage accounts, you’ll generally need to contact each financial institution directly. They will have specific forms and procedures for retitling accounts into the name of your trust.
You may be asked to provide a “Certification of Trust” – a condensed version of your trust document that provides essential information needed to transfer an account owned by the trust, without revealing all the private details.
Consider Beneficiary Designations for Retirement Accounts and Life Insurance:
- Retirement Accounts (IRAs, 401(k)s, etc.): Generally, you should not directly transfer ownership of these accounts to your RLT during your lifetime due to potential immediate tax consequences. Instead, your RLT is often named as a contingent beneficiary or, in some cases, the primary beneficiary of these accounts. The best strategy for retirement accounts is highly nuanced and depends on your specific goals and beneficiary circumstances, requiring careful consultation with your estate planning attorney and financial advisor.
Life Insurance Policies: Ownership of a life insurance policy may be transferred to your RLT. Your RLT is also commonly named as the primary beneficiary of the policy. This allows the death benefit to flow into the trust and be managed and distributed according to the trust’s terms, providing more control than an outright distribution to individual beneficiaries.
- Assign Personal and Business Property:
- For tangible personal property that doesn’t have a formal title (like furniture, artwork, or jewelry), your attorney will often prepare a “General Assignment of Personal Property” to transfer these items to your trust.
- For business interests, a formal assignment of ownership (e.g., membership interests in an LLC, shares in a corporation) will be necessary, often requiring amendments to the company’s operating agreement or bylaws.
Regular Review and Maintenance:
- Funding an RLT is not a one-time event. As you acquire new assets, it’s crucial to title them directly in the name of your trust or transfer them into the trust as soon as possible.
- Periodically review your asset list and your trust documents to ensure everything is aligned with your current wishes and that all new assets are properly funded.
The Role of Your Attorney:
While funding an RLT can seem daunting, your estate planning attorney is your indispensable guide. We can:
- Help you inventory your assets.
- Prepare the necessary deeds and assignment documents.
- Provide detailed instructions for working with financial institutions.
- Advise on the optimal titling and beneficiary designations for all your assets, especially complex ones like retirement accounts.
- Ensure that your RLT is legally effective and accurately reflects your intentions.
Properly funding your Revocable Living Trust is the cornerstone of an effective estate plan. By taking the time to complete this vital step, you provide yourself and your loved ones with peace of mind, knowing that your assets will be managed and distributed efficiently and privately, exactly as you intended.
©Surprenant & Beneski, P.C. 35 Arnold Street, New Bedford, MA 02740, 336 South Street, Hyannis MA 02601 and 45 Bristol Drive, Easton MA 02375. This article is for illustration purposes only. This article does not constitute legal advice. There is no attorney/client relationship created with Surprenant & Beneski, P.C. by this article. DO NOT make decisions based upon information in this article. Every family is unique and legal advice can only be given after an individual consultation with an elder law attorney. Any decisions made without proper legal advice may cause significant legal and financial problems.