I Have a Trust – Now What?

Many people feel like they have finished preparing for their family’s financial future after setting up a trust. But they often forget a simple step that needs to be taken after the trust has been completed for it to be effective. What is that step? Retitling accounts in the name of the trust.

When creating a trust, aside from a few exceptions which we will touch on later, all of your assets should be owned by your trust. If all of your assets are in your trust then there is really no need for a will, and your estate can avoid probate. “Probate” is a term that essentially means ‘to prove.’ When you go through the probate process, you are going to the court to ‘prove’ the will to the court. In turn, the court will issue orders to distribute assets according to the will. While going through probate works, it will often cost thousands in legal fees and take months. One of the main goals of a trust is to avoid probate and save your heirs some of that money.

So how can we make sure that all the assets are owned by the trust? A common misconception is that assets can be “placed” in the trust simply by being listed in an attachment to the trust. This is NOT the case! Brokerage accounts, bank accounts, and real property must be “retitled” into the Trust by completing paperwork with the relevant broker, bank or county. Remember, the trust is a completely separate legal entity. Even though your living trust may use your Social Security Number during your life, you and your trust are legally distinct.

Assets that have not been retitled into the name of the trust are not legally controlled by the trust, and may need to go through probate, often very unwelcome during the time of grieving a passing Grantor. Assets in the name of the trust, however, make the situation a lot simpler and can provide a sense of peace to family members. This is because assets in the name of the trust avoid probate all together, and the successor trustee may distribute the assets as allowed by the trust in an efficient manner without court oversight.

Sometimes clients feel that they do not need to retitle their accounts because their attorney created a pour-over will. Often created in conjunction with a trust, a ‘pour-over’ will ‘pours’ anything held by you as an individual into your trust upon your death. While this is a good stop-gap measure, it still results in a much better outcome to simply retitle assets into the name of the trust. A pour-over will often requires filing with the courts, significantly extending the time it takes to roll assets into the trust as well as increasing the workload for the beneficiaries. Also, if the assets outside of the trust are large enough ($166,250 as of Jan. 1, 2020 in the state of California), or if you own real estate outside of the trust, then your will must go through the probate process. This means that despite your efforts building the trust, you will still be required to spend even more time and money going through probate, negating one of the key benefits of creating the trust in the first place!

There are, however, a few specific exceptions to the rule that all your assets should be in the trust. You may exclude a basic checking account (as long as it does not hit the asset limit). Also, IRA’s, 401k’s, Pensions, and other retirement accounts cannot be owned by a trust. Rather, retirement accounts will simply pass “by order of law” to the beneficiary named in the account. This process avoids the probate process just like the trust. The best practice is simply to identify your beneficiaries and keep them updated, making sure any changes you would like are reflected. In rare instances you may want to name your trust as the beneficiary of your IRA, but make sure to talk it through with your estate planning attorney. Lastly, accounts with a ‘Transfer on Death’ designation can be excluded from your trust, but make sure to consider how the account fits within your overall estate plan.

There are also certain items which we do not recommend placing into a trust. These items include any kind of automobile, boat, or motorhome.

If you have any questions about retitling your assets into your trust or if you are wondering whether a trust is right for you, please give us a call and we would be happy to speak with you about your options.