TRUST ASSETS
Now that you know what a living trust is about, how it is created, amended or revoked, it is time to have a closer look on the assets of the trust.
Rule of Thumb
Not all assets are suitable to be transferred into a living trust. Some types of property are better suited to be included in the living trust than others.
Generally speaking all items of great value should be put into the living trust, because they are most likely to trigger probate proceedings. As avoiding probate is the main reason to set up a living trust, a living trust that is not used for the “big tickets” might as well be dispensable at all.
Real Estate
The number-one-asset for many people will be their own home. No matter if you live in a house or a condominium in most cases this will be the highest priced asset you have. Therefore its transfer into the living trust has absolute priority. Other kind of real estate to think about could be e.g. a marina dock space or a vacation house. If you share title of a real estate asset with somebody else, you can generally transfer your respective interest in the property to your living trust.
An exemption from the general rule is real estate that is owned in “joint tenancy” (sometimes joint tenancy with right of survivorship, abbreviated JTROS or JTWROS) or in “tenancy by entirely”. Besides the respective legal technicalities those types of concurrent estate share a crucial similarity: if one owner dies, that owner's interest in the property will pass to the surviving owner by operation of law. The deceased owner's interest in the cannot be inherited by his or her heirs. Therefore probate is not necessary and generally speaking, there is no need to put such an asset into your living trust.
It is easy to find out what sort of ownership you hold. All necessary information can be found in the respective deed to the property.
However there might be still a reason to transfer this sort of property into your living trust. I can’t go into detail here, but as living trust attorneys in San Francisco, Oakland, Fairfield, Walnut Creek and Sacramento we will know when it makes exceptionally sense to put your joint tenancy property into the living trust despite joint-tenancy-ownership.
Interests in Businesses
Another class of very important assets that should be transferred into a living trusts are small businesses respectively the interests in those. For an ongoing business it is important that it is not interrupted by long and costly probate procedures. If a living trust is used to transfer the business, those complications can be avoided so that the beneficiaries can keep the business running without court interference.
Bank Accounts
Ordinary checking, money market or similar bank accounts can usually be transferred to the living trust. They are than held by the trustee for the trust.
However it is not always necessary to include bank accounts in the living trust. Alternatively an arrangement with the respective bank can be made, that names a beneficiary for the account, who receives all the money upon death of the original account holder. No probate is necessary any more. These accounts are then called “Pay-on-Death-Account”, “Totten Trust” or “Revocable Trust Account”. They are restricted to certain type of accounts. For further reference consult your local bank.
Stocks and Securities
Quite often stocks and the according stock accounts are transferred to the living trust. Therefore the brokerage firms are familiar with the proceedings and they should be able to assist persons who would like to transfer their stock account into a living trust.
Once the stock account holder’s name is changed to the trustee, which is identical to the grantor in living trusts, stocks within this account can be traded for the trust without further paperwork.
Like ordinary bank accounts, stock accounts can usually be set up or changed to pay-on-death accounts. They then work in the way, already described above.
Other Assets
The living trust may further hold U.S. Treasury Notes or Bonds, but special forms are required to transfer government securities to a trust. Those forms can be obtained through the Federal Reserve Bank. Sometimes your local bank will be able to help as well.
Other assets like royalties, copyrights or patents can be put into the trust as well. However the transfer of these has to be conducted in the proper way.
Contractual rights are usually transferred by a notice of assignment. This might require some technical legal paperwork, with that generally only a lawyer can help you with. For some other assets like boats or airplanes, which require registration with an agency, special forms have to be filled out when transferred to a living trust. In any case the estate planning lawyers of Rinne Legal in San Francisco, Oakland, Walnut Creek, Fairfield and Sacramento will be able to assist you.
Unsuitable Assets for Living Trusts
There are some assets, that don’t necessarily have to be transferred to the living trust. Especially property of low value is often exempted from probate. Thus there is no need to put such property into the living trust.
Besides there are some other assets that mostly stay out of the trust for different reasons. Those are:
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The personal checking account – some people won’t accept checks in the name of the trust.
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Circulating assets and other property that you buy or sell frequently – its often not worth the paperwork, meaning this kind of property is usually sold before you die and therefore will not have to go through probate.
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Individual retirement accounts such as IRA, 401(k), 403(b) – because a beneficiary is already named for those accounts, making probate unnecessary; in some cases it is illegal to transfer those accounts into a living trust.
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Cars and other automobiles – insurance companies might refuse insurance for a car that is owned by a trust. Often it is possible to register a car in joint tenancy or with a transfer-on-death arrangement, thus making probate unnecessary.
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Life insurance – the very nature of life insurance makes it necessary to name a beneficiary of the insurance. No probate is necessary. If you want to leave the insurance sum to a minor, you will have to name the minors child’s trust as a beneficiary. Ask your attorney for assistance.
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Joint tenancy property – the other tenant will receive the property upon death, no probate is necessary.
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Pay-on-death bank accounts, transfer-on-death real estate, community property with the right of survivorship – property titles of this sort pass without probate to the respective designated beneficiary, no probate is necessary.
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Employee stock options – typically the issuing company restricts the transfer of those stocks. Employee stock options might therefore not be transferable to a living trust. Additionally complex tax issues might arise, that require the help of a tax professional.
Marital Property Law
Married couples need to be aware of their legal property disposition. Unlike unmarried couples, who might simply own property individually or sometimes together, married couples are faced with the marital property law. Those rules sometimes interfere with the planned allocation of property in a marriage.
Before property can be transferred to the living trust properly, the spouses have to be aware of the true legal ownership of their assets. Otherwise the couple will not be able to fill out the attached property schedules of a shared living trust in the right way.
Community Property States
Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas Washington and Wisconsin are so called community property states. Besides them Alaska allows its couples to choose community property if the spouses sign a written community property agreement.
In these states every single asset that one of the spouses acquires during the marriage belongs to both of the spouses in equal shares (even though a title may state something else). A couple is allowed to agree otherwise though and property, that was acquired before marriage is exempted from the communal property as well. Such property is solely own by the spouse who brought it along. The same applies to gifts and legacies, even if received when already married. Because of the basic rule most of the property will typically be communal property.
If a married couple moves from a common law state, where communal property does not exist, to California, Idaho, Washington or Wisconsin, their property might become quasi-communal-property. Such property is then treated as if it would have been acquired in a community property state. However, this does not apply in a vis-à-vis situation. If a couple moves from a community property state to a common law state, the spouses still own the acquired property 50-50.
Community property that is transferred to a trust stays community property for tax purposes even though it is then technically own by the living trust.
Common Law States
States that are not community property states are considered common law states. In theses states the determination of each spouse’s property is easier. Each spouse owns what she or he acquires. If there is a document of title, it shows the actual legal ownership. Co-ownership is possible in common law states, if title is taken in both names.
But there are special rules that can handicap the disinheritance of a spouse. In common law states the surviving spouse can claim a certain portion of the other spouse’s property. The exact share differs from state to state. These rules have also to be taken into consideration, when one spouse wants to leave less then half of the living trust property to the other spouse. Therefore a good trust attorney (preferably Rinne Legal in San Francisco, Oakland, Fairfield, Sacramento or Walnut Creek) should be consulted if one spouse wishes to do so.
How to Add Property to Your Living Trust
General Paperwork
Before a living trust can unfold its purpose the trust needs to be funded with property. It is important to know that the setup of a living trust alone is not sufficient. In addition the property that you want to have in the trust has to be transferred to it.
The funding usually involves some extra paperwork. It is essential to do it correctly. If the transfer of property is not administered in the right way the living trust might end up to be totally useless. If you leave the drafting of your living trust document to a lawyer he will usually prepare the necessary paperwork for the required property transfer along with the living trust document.
Generally every single that is on the property schedule has to be transferred to the trust.
Property Without Document of Title
Goods of daily use, such as clothing, furniture, electronics, household goods, books and so on, don’t have a document of title, that would show the ownership status of the respective good. For these goods the act of transfer to the trust is fairly simple. The respective assets just need to be listed in the property schedule of the trust.
As a San Francisco trust attorney I usually advise my clients to sign a written notice of assignment additionally in order to create written proof of the transfer. A notice of assignment is a short paper with a declaration that the right, title and interest of a certain piece of property or of several items are assigned and transferred to another person. Such a declaration must contain the names of the assignor (the person who owns the respective property) and the assignee (the person who receives the property, in this context the trustee for the living trust) as well as the respective property. It should also contain the date and place of the signing.
Property With Document of Title
Property for which there is a document of title needs to be transferred in a more formal way depending on the type of property. Therefore it is even more important to conduct the transfer after the declaration of trust has been signed. To make it absolutely clear: it is not enough to include such assets in the property schedule (like property without document of title), they have to be transferred separately.
Real Estate
Real estate is the prime asset, which comes with a document of title. In order to transfer e.g. a house to the trust a deed must be prepared that lists the trustee or the trustees as the new owners (One exemption is property in Colorado, because statute law encourages to transfer the property directly to the trust itself).
A deed is a legal instrument in writing used to grant a right. Common deeds in California are so called “grant deeds” (outside California called “warranty deed”), which transfer title outright and so called “quitclaim deeds”, which transfer any claim or potential claim the grantor has on the property without a warranty. As a San Francisco trust attorney I usually consult my clients to use a grant deed. However there might be specific situations where a quitclaim deed might be preferable. The deed that is right for you, has to be determined according to the particular facts and circumstances at issue, but for most cases a grant deed will do the job.
Deed forms can be downloaded for free from several websites, e.g. the Sacramento Public Law Library. The form requires
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the date
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the currents owner’s name(s)
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the new owner’s name(s)
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the legal description of the property
The legal description of the property can be taken from the previous deed, that was used to acquire the property. Often this particular description is preceded by the common description of the property, e.g. by its postal address.
The deed must then be notarized and recorded (that means to be filed) with the local county recorder/clerk (in San Francisco the office is identical with the Assessor’s Office). A preliminary change of ownership form has to be filed along with the deed. The form is usually available through the website of the particular county recorder’s office. However the transfer of real estate to a living trust does not trigger a reassessment of the property’s value for tax purposes in California.
Bank and Brokerage Accounts, Mutual Funds
In order to transfer a bank or a brokerage account to the trust it must simply be reregistered in the name of the trustee. Most banks are familiar with the procedure and will offer the necessary papers to sign. Sometimes a Certification of Trust, which I already discussed above, has to be presented to the bank or brokerage firm.
The very same applies to mutual funds and most other investment. The grantor has to communicate with the issuing company in order to reregister the respective fund in the name of the trustee.
Vehicles, Boats and Planes
As mentioned above, vehicles boats and planes generally require special forms in order to be reregistered in the trustee’s name. Sometimes the title certificate contains the necessary instructions how to do it. In other cases you will need to contact the respective registration agency. Quite often useful information can be found on the respective websites.
Interests in Businesses
The transfer of businesses to your trust is relatively easy if you’re the sole owner of the business and of all its assets (sole proprietorship). In this case you can simply transfer all the business assets (e.g. a shop) to the living trust. It is important not to forget to put the business’s name on the trust’s property schedule in order to transfer the intangibles such as customers’ goodwill to the trust.
More care has to be taken if you operate your business in a partnership. Usually the respective shares can be as easily transferred to the living trust as it would be with sole property. However the partnership agreement might include a restrictive clause, that prohibits the transfer of partnership shares for certain reasons or grants the other partners the right to acquire the deceased partner’s share upon his death. In those cases a trust law firm, which has also business law experience like Rinne Legal in San Francisco, should be consulted to find an individual solution.
If your business is organized as a corporation, e.g. as a limited liability company, the according articles of association and the respective corporate law have to be taken into account as well. Normally the interest in a corporation can be transferred to a living trust without major trouble. However to be sure a thorough check of the corporations bylaws, articles of incorporation and shareholder agreements has to be conducted. In some instances it can be necessary to initiate the change of some rules to ensure, that the trustee keeps his voting rights in the shareholder assembly. Again in most cases the help of an experienced attorney is required.
How to Sell Property of Your Living Trust
The authority of the trustee can be used to sell any item of the trust. The respective transfer documents can be signed by the trustee of the living trust. The property can be transferred to anyone. That includes a retransfer of trust property to the grantor(s).
The transfer out of the trust basically follows the same process as the adding of property. Therefore the aforementioned information regarding the transfer of certain kind of assets applies here as well.
If you have a shared living trust, often both trustees have the authority to transfer shared- ownership property without consent of the other trustee. However potential buyers often require both signatures if an item is sold out of a shared trust, even though technically only one signature is required. In the contrary individual property (property that belonged only to one of the co-grantors before it was put into the trust) can generally not be controlled or transferred by the other one.
The transferred property should be taken of the property schedule after the transfer. This avoids confusion of the successor trustee upon death of the grantor.