Signing your living trust is definitely an accomplishment to celebrate. The living trust based estate planning documents solve so many of the problems that can come along with dying or becoming incapacitated. It brings some well deserved peace of mind to finally have something in place.
For the plan to really work as intended however, which includes avoiding probate court and keeping things as smooth and stress-free as possible when you're gone, it is important that your assets be properly integrated with your trust. This involves both an upfront investment of time and effort to re-title assets in the name of the trust and/or to update beneficiaries to the trust, as well as keeping the trust's assets current and up-to-date over the long haul as you acquire new assets, refinance existing properties, etc. Failing to implement the important steps laid out here may require your loved ones to go into probate court and get a judge's order that your assets be transferred to your trust upon your passing, which can involve considerable expense and time, as well as create a public record of the assets that are being transferred to the trust which, had you done so during your lifetime, could've remained private.
Below are the generally recommended steps for the most common types of assets:
Transfer Real Estate to Your Trust (and Make Sure it Stays There)
You should sign property deeds at the time you sign your trust that transfer your existing real estate (home, rental property, land, etc.) out of your name and into your name(s) as trustee(s) of your trust. If the property is not transferred to your trust during your lifetime, a probate will be required when the owners on title pass away.
When you acquire new property, let the title company know after you open escrow that you wish to take title to the property in the name of your trust. If that does not occur for any reason, then notify your attorney after closing that you have acquired additional property and need to have a deed prepared transferring it to your trust.
Note: transferring your property to your own revocable trust will not affect existing mortgages, or your California property tax base.
Also, here's a helpful tip if you refinance: make sure that the property stays titled in your trust. Sometimes the lender will have you take it out of your trust to fund the loan in your individual name, and then fails to transfer it back to the trust after closing. I have a whole article on the topic of refinancing here.
Transfer Bank Accounts to Your Trust
Bank accounts left in your individual name and without a designated beneficiary to receive the proceeds at your passing may require a probate when the owners on title to the account pass away. Therefore, bank accounts should be integrated with your trust in one of two ways: either transfer the account into your trust during your lifetime (the bank will help you do this) or make the trust the designated beneficiary to receive the account when you pass away. I have a whole article on the topic of bank accounts that can be found here.
I recommend that you have at least one bank account that is actually titled in the name of your trust during your lifetime, even if you choose to do beneficiary designations for other accounts. The reason is that you may need to deposit money into a trust account at some point if, for instance, you sell a piece of property that is titled in the name of your trust. By having at least one account already titled in the name of your trust at all times, you will have a ready place to deposit a check made out to your trust. If you don't, then you may be in a position of not having a place to deposit trust money, and will have to wait until an account can be opened.
Transfer Post Tax (Non-Retirement) Stocks and Bonds to Your Trust
Much like bank accounts, stocks and bonds held inside of a non-retirement brokerage account should be held in the name of your trust, or the trust should be the named beneficiary.
If you have employee compensatory stock accounts with RSUs, options etc., you should generally make your trust the designated beneficiary for these types of accounts. That will be the most simple way to integrate them with your trust without violating any underlying transfer restrictions on the account.
Transfer Business Interests to Your Trust
If you own any type of business, whether it is a corporation, LLC, partnership, or sole proprietorship, it should be integrated with your trust. That will involve assigning your individual interests in the business over to your trust and potentially updating corporate share certificates. Before doing any of this, however, it is important to review all underlying agreements (such as operating agreements and/or shareholder agreements) to be sure that there are no restrictions on transferability, including obtaining consent of a manager or corporate officer.
For limited partnerships where your role is simply as a passive investor, you can either transfer your individual interest to your trust, or make the trust the designated beneficiary to receive the asset upon your passing.
Potentially Name the Trust as Beneficiary or Contingent Beneficiary of Life Insurance
Most life insurance remains in your individual name during your lifetime, with a designated beneficiary named to receive the death benefit and any accumulated cash value upon your passing.
You may wish to name the trust as the beneficiary or contingent beneficiary of life insurance (as opposed to simply naming an individual beneficiary) if you want the proceeds to be controlled by the terms of your trust. This is often the case when there are minor children involved who are too young to be named as an individual beneficiary. Naming the trust as beneficiary or contingent beneficiary in that instance will allow your trustee to manage the life insurance proceeds for the benefit of younger children until they are old enough to handle it themselves at the ages provided for by the trust document.
Naming the trust as a beneficiary of life insurance is also recommended for trusts that are designed to provide lifetime asset protection for children or other beneficiaries, so that the death benefits can have the asset protection features provided by the trust vs simply being paid out to the beneficiary in a lump sum.
Potentially Name the Trust as a Beneficiary or Contingent Beneficiary of Retirement Accounts
Retirement accounts such as a 401k, IRA, 403b, etc., are a bit more complicated than other types of assets for income tax reasons. This is even more so since the passage of the SECURE Act in 2019.
My general recommendation for retirement accounts for most clients is to name the spouse (if any) as the primary beneficiary so they can do a spousal rollover of the account and continue to stretch the income tax deferral over their life expectancy. For non-spouse beneficiaries, including children if they are adults and not under a disability or serious spendthrift concerns, then naming them as individual beneficiaries or contingent beneficiaries is likely going to be your best bet for income tax reasons and for overall administrative simplicity.
If you have minor children, or beneficiaries with a disability, then naming the trust as a beneficiary or contingent beneficiary can be a wise choice, provided the terms of the trust are sophisticated enough to support the maximum stretch of the income tax deferral available under the law. Not all trusts are created equally in that regard, and, if the trust is not drafted properly to hold a retirement account then it may have to be paid to the individual beneficiary within 5 years.
Proper trust funding is an integral part of the success of your estate plan. Taking the above steps after you initially sign your trust, and continuing to implement them over time will help make things much smoother for your loved ones down the line.