Creating a Trust Isn't Enough: The Importance of Transferring Assets

A trust can prevent a long and costly probate process and make the inheritance process easier for your heirs. Trusts can also maximize the value of your estate. One of our clients recently saved his heirs $58,000 by titling his properties in a revocable trust instead of a will.

Unfortunately, simply creating a trust and listing who gets what isn’t enough. Certain assets must be retitled to ensure they avoid the probate process. Also, retitling ensures that they don’t pass to a former spouse or ex-business partner. That said, certain assets shouldn't be included in a trust because the transfer could trigger a taxable event. 

In this article, we’ll cover:

• The best assets to put in a trust
• How to move assets into a trust
• Assets that shouldn’t be part of your trust

How To Transfer Property Into a Trust

Let’s say you have one child, and you want them to inherit your home and avoid probate. You spell everything out in the trust, but if a former spouse’s name is still on the title, a court may decide your ex-spouse is legally entitled to the house — overriding your wishes.

Below is a list of assets you can put in a trust and a general guide on how to transfer each asset, step by step. Note that these steps may vary depending on your state or county, so it may make sense to consult with a local attorney to help guide you through the process. 

Real Estate

1. Execute a new deed (such as a grant deed or quitclaim deed) transferring ownership of the property (or your legal interest if the property is not owned free and clear) to the trust. Note that these documents will typically need to be notarized.
2. File the deed with the county recorder’s office. The recorder’s office may also require you to submit a full legal description of the property being transferred to the trust. Consult with an attorney and/or the recorder’s office to obtain the full legal description of the property.
3. Update homeowner’s insurance and title insurance to reflect the trust ownership.

Bank Accounts

(Checking, Savings, CDs, Money Market)

1. Visit your bank with fully executed trust documents.
2. Complete the bank’s required forms to retitle the accounts in the trust’s name.
3. Update direct deposits and automatic payments accordingly.

Investment Accounts 

(Brokerage, Stocks, Bonds, Mutual Funds)

1. Contact your brokerage firm to complete the necessary ownership change forms.
2. Provide trust documentation (such as a certificate of trust or trust agreement).
3. Update your beneficiary designations as needed.

Life Insurance Policies

Contact the insurance provider to change the beneficiary to the trust. This ensures proceeds are managed according to the trust terms. An experienced wealth manager can help walk you through the pros and cons of listing a trust as a life insurance beneficiary. In many cases, it might make sense to list your spouse as the primary beneficiary and a revocable trust as a contingent beneficiary.

Business Interests

A business attorney can make recommendations based on your business type and personal circumstances.

Personal Property

(Jewelry, Artwork, Collectibles, Vehicles)

• For high-value assets without a title, create a schedule of personal property to include in the trust.
• For titled property, such as collectible cars, contact the DMV to retitle the asset in the trust’s name. 

Digital Assets

• Update ownership or account settings where possible.
• Some online accounts may allow adding the trust as a beneficiary or co-owner.

Assets You Should Not Transfer Into a Trust

Retirement accounts, such as an IRA, 401(k), 403(b) or annuities, should not be retitled into a trust because it could trigger a taxable event. Instead, update the primary or contingent beneficiary designation to the trust (as appropriate based on estate planning goals).

Medical Savings Accounts, such as HSAs, cannot be transferred into a trust. You can, however, name the trust as a beneficiary.

Financial Accounts You Use for Bill-Paying — instead of transferring into a trust, choose one or two heirs as your primary and secondary beneficiaries payable-on-death (POD).

Don’t Leave Your Legacy to Chance: Retitle Your Assets

Titling assets into a trust is an essential step in your estate plan. By ensuring the trust owns your assets, you pave the way for seamless distribution of your assets and help your heirs avoid unintended tax consequences.

An experienced wealth manager can help you:

• Decide which assets to retitle. 
• Ensure your estate is as tax-efficient as possible.
• Update your estate plan if circumstances change.

Related Reading:

• The Ex-Girlfriend and the 401(k) Windfall, A Cautionary Tale
• Estate Planning: How to Avoid Common Pitfalls and Costly Problems
• Tax Planning Strategies for Non-Taxable Estates

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