4 Tips to Fund Your Living Trust

While there are plenty of options to properly plan your estate, living trusts are becoming more popular every day. Your Orange County estate planning lawyer will certainly advise you on all of your options, but it may be worth asking if a living trust is right for you.

Of course, there’s more to a successful trust than simply going over it with an estate planning attorney in Orange County. You also need to adequately fund it without stretching yourself too thin.

Here are some of the top tips to help you fund your living trust

What Does It Mean To Fund Your Trust?

If you’re not familiar or you haven’t met with an estate planning lawyer in Orange County CA , it’s crucial to know what a trust is. The easy way to think about it is like a bank account that holds money, property, and other assets.

These assets are then managed by a trustee. A trustee is simply someone you appoint to help manage your trust towards the benefit of the trust’s beneficiary.

In some ways, trust is a lot like a will. Upon the trust owner’s death, the assets that make it up are then passed on to the person or people you name in the trust.

Funding a trust describes the process of transferring your assets from you to it. The process includes changing the names on the titles of your assets into the name of the trust as if it were another person.

If you don’t fund the trust, you negate the benefits of creating a living trust in the first place, like avoiding probate.

To learn more about the various kinds of trusts and which ones might be appropriate for your estate plan, reach out to an Orange County estate planning attorney .

4 Tips to Fund Your Living Trust

1. Watch Out For Real Estate Fees

One of the first things people consider adding to their living trust is any real estate they may own. In theory, this is a great place to start. It requires transferring the deed into the name of the trust. 

If you still have a mortgage or live in a community governed by a homeowners’ association (HOA), there are several things to consider.

First, transferring real estate often comes with a transfer tax or other kinds of fees. There are areas where these fees are exempt when transferring to a living trust, but that’s not always the case.

Some states even consider the transfer as a full sale at fair market value, which would mean you’ll be on the hook for tons of extra taxes.

You may also run into issues with your HOA. Some of these organizations require permission to transfer your deed or include additional fees. It’s crucial that you understand all of the taxes and fees involved before transferring any real estate into a living trust.

You could end up owning enough in fees that it negates the benefit of the trust.

2. Avoid Early Withdrawa

Another starting point for funding your living trust involves transferring your bank accounts into the trust. Ultimately, this is a pretty straightforward endeavor.

Check with your estate planning attorney in Orange County and your bank to learn how to properly transfer savings, checking, and money market accounts. Most often, you’ll close the account and then transfer everything into a new one in the name of the trust.

Where it can get messy is if you have any kind of investment, Certificate of Deposit (CD), etc. Some of these accounts may view your transaction as an early withdrawal. That would mean paying a variety of penalties.

Therefore, it might be best to wait until your CD fully matures before officially transferring it into your trust.

3. Don’t Forget Your Life Insurance

Some people don’t realize that their trust can be both the owner and beneficiary of a life insurance policy.

When the trust is the owner, it allows the trustee to control the policy in the case that you become incapacitated. For example, the trustee may need to access these funds to help pay for your medical care.

Since the trust is your beneficiary, it will receive the payout from your policy upon your death. That money will still go to your intended beneficiary outside of the trust but will continue with the same protection the trust offers your other assets.

Be careful, though. In some states, life insurance policies are only protected from creditors if they are owned by individual people. In these areas, handing over your policy to the trust could make those funds fair game to creditors. If this is the case, your estate planning lawyer in Orange County can help you create a power of attorney (POA) who can manage the policy when you are unable.

4. What About Assets That Can’t Be Transferred?

There are some assets that actually can’t be used to fund your trust. In these cases, there is a workaround that can still work for you.

For example, it’s never wise to retitle any retirement accounts like an IRA, 401(k), 403(b), and qualified annuities.

Retitling these will result in hefty fees for early withdrawal. You’ll also be stuck paying income tax on them. Instead of retitling the account, simply name your trust as the beneficiary of the account. That means those funds will still be available in your trust.

Medical Savings Accounts (MSA) are another example of something that shouldn’t be retitled. You can designate your trust as one of the beneficiaries and gain peace of mind.

Don’t Go Through the Process Alone

While the basic idea of a trust is rather straightforward, living trusts can get rather complicated. It’s in your best interest to work with a professional who understands the laws in your state as well as the best methods to protect your assets.

While there are plenty of DIY articles available online, getting your estate plan processed correctly is worth working with a seasoned professional.

If you want the best legal team on your side, schedule your free initial consultation with us at Parker Law Offices. Contact us at (949) 385-3130.

from Estate Planning Blog - Wills, Trusts & Probate Law in California https://www.estateandtrustlawyer.com/4-tips-to-fund-your-living-trust

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