Many people choose to include a revocable living trust in their estate plan. If you are among them, you will need to fund the trust that you create. That means you need to understand what assets should and should not be transferred into your trust and what you need to do to effectuate those transfers. Toward that end, the Indianapolis trust attorneys at Frank & Kraft explain what can and what cannot be used to fund a revocable living trust.
What Is a Revocable Living Trust?
A trust is a legal agreement that lets the person creating the agreement (the “Settlor”) appoint a Trustee to manage and protect assets intended to benefit a third party. A trust can be a living trust or a testamentary trust. As the name implies, a living trust activates while the Settlor is alive whereas a testamentary trust is activated by a provision in the Settlor’s Last Will and Testament after the death of the Settlor. If you create a living trust, you must also decide if the trust will be revocable or irrevocable. With a revocable living trust, you have the ability to revoke the trust entirely or to modify anything about the trust whenever you want.
What Can Be Used to Fund a Revocable Living Trust?
A revocable living trust is a separate legal entity, meaning you must legally transfer assets into the trust. Once transferred, the assets are legally owned by the trust. There are some assets that are commonly used to fund a trust, some assets that cannot legally be owned by a trust, and some assets that do not work well when owned by a trust. Among the assets that can be used to fund a revocable living trust are:
- Financial accounts, including bank accounts, investment accounts, and safety deposit boxes.
- Real estate, including your home or land.
- Vehicles (in some states)
- Life insurance policies
- Oil and mineral rights.
- Intellectual property rights.
- Collectibles, such as an art or coin collection.
- Business assets/ownership if the business operates as a sole proprietorship or a partnership.
What Cannot Be Used to Fund a Revocable Living Trust?
There are other assets that either cannot legally be transferred into a trust or it is not advisable to use the asset to fund a trust for various reasons. Health savings and medical savings accounts, for example, already allow you to use the funds tax-free so they cannot be transferred into a trust. Retirement accounts, such as an IRA or 401(k) should also not be used to fund a trust because transferring the account into the trust would likely be viewed as a withdrawal from the account, causing a taxable event in the eyes of the IRS. Personal or business checking and savings accounts should only be transferred into a revocable living trust if you are the Trustee of the trust and you have full authority to access and utilize the funds held in the account. Likewise, transferring your personal or business vehicle into a trust may, or may not, make sense. If you are able to easily transfer ownership of the vehicle using a “transfer on death” designation it may be easier to leave the vehicle out of your trust.
How Do I Transfer Assets into a Trust?
For some assets, you will need to complete a new title, deed, or other ownership document when transferring the asset into the trust. Many assets, however, do not have title documents. You should still document the transfer of ownership though by creating a general transfer of ownership documenting identifying the asset with as much detail as possible and stating that the asset is now owned by the Trustee on behalf of the trust.
Contact Indianapolis Trust Attorneys
For more information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about what can and what cannot be used to fund a revocable living trust, contact the experienced Indianapolis trust attorneys at Frank & Kraft by calling (317) 684-1100 to schedule an appointment.
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