The preparation of revocable trust documents is only the first step in eliminating probate and minimizing estate tax. Once drafted, you must “fund” your trust. The process of funding assets into trust can be somewhat laborious, but is essential to achieving the full benefit of revocable trusts.

Funding is the process of transferring ownership (or a beneficial interest) in assets into trust during life. Assets owned in trust during life avoid probate at death.

The procedure for funding depends on the type of the asset being funded. Real estate, brokerage accounts, business interests, and bank accounts are funded by making the trust the owner of the asset. The trust name must contain the name of the Grantor, the Trustee(s), and the date the trust was created.

A typical trust name would be “Wendy Barnes as Trustee for the Wendy Barnes Trust dated September 1, 2001.” However, in light of the space limitations on typical ownership and beneficiary forms, it may be necessary to abbreviate the trust name down to its most important elements. The following name can be used in place of the full trust name described above: “Wendy Barnes Trust dated 9/1/01.”

REAL ESTATE

A “Warranty Deed” or “Quit Claim Deed” is used to transfer ownership of real estate into trust. Some advisors favor “recording” funding deeds, (i.e. filing the deed with the county register of deeds), while others prefer to record deeds only upon the death of the grantor. The fact that property is subject to a mortgage does not prevent you from transferring it to trust.

Ownership of your principal residence in trust does not affect your eligibility for the $250,000.00/$500,000.00 forgiveness of gain on sale available under federal Law. However, for Medicaid eligibility purposes, a principal residence owned by a revocable trust is not eligible for the homestead exemption.

QUALIFIED PLANS AND IRAs

Ownership of qualified retirement plans and IRAs cannot be changed without causing the entire account to become immediately taxable. Artfully drafted beneficiary designation forms are necessary to properly fund such retirement accounts into trust. As a general rule, married participants should name their spouse as primary beneficiary, with the revocable trust of the participant named as the contingent beneficiary.

A two-part beneficiary designation allows the greatest flexibility in negotiating the complex and perilous income and estate tax rules that apply to retirement plan assets. Unmarried participants should either name their revocable trust as primary beneficiary or their children directly. Retirement plan and IRA distributions are discussed in greater detail in Chapter Six.

PERSONAL PROPERTY

Other than automobiles and other vehicles whose title is regulated by state motor vehicle law, no action is required to fund personal property into trust. Since personal property (e.g., furniture, jewelry, art work and other items) cannot be re-titled (i.e., there’s no title for a table or chair!), such property cannot be transferred into trust. Instead, the disposition of personal property is governed by your Will.

Rather than addressing items of personal property directly in the document, most Wills permit the use of a “separate writing,” disposing of items of personal property. Automobiles and other items capable of being re-titled should not be transferred into trust. For liability purposes, automobiles, recreation vehicles, and other motor vehicles should be owned by the user of the vehicle.

OFTEN MISSED ITEMS

Savings bonds, stock certificates and undeveloped real estate lots tend to be overlooked during the funding process. Overlooked assets require a probate proceeding to transfer title. For this reason, it is important to be diligent in identifying all of your assets and then make sure that they are all transferred to trust.