One of the most common additions to the average estate plan is a trust agreement and a revocable living trust is a popular choice when a trust is included in an estate plan. If you decide to include a revocable living trust in your plan you will have to fund that trust after you have created the trust agreement. While it is always in your best interest to consult with an experienced estate planning attorney during the creation of a trust agreement, it can also be helpful to have some idea what to expect. With that in mind, the Vero Beach trust attorneys at Kulas & Crawford discuss how you can fund your revocable living trust.
Understanding Your Revocable Living Trust
The person who creates a trust is referred to as the Settlor, Trustor, or Grantor. A trust is established by drafting a legal document called a trust agreement. The purpose of any trust is to allow someone (the “Trustee”) to protect and manage assets intended to benefit third-party beneficiaries. A living trust is created during the lifetime of the Settlor. Conversely, a testamentary trust is created using a provision in the Settlor’s Last Will and Testament, meaning a testamentary trust does not activate until after the Settlor dies. When a living trust is created, the Settlor must make the trust revocable or irrevocable. One reason a revocable living trust is so popular is the ease with which one can be modified or revoked.
Funding My Revocable Living Trust
Once a revocable living trust is created it becomes a stand-alone legal entity. A trust can do most of the same things that an individual or business can do such as own assets, buy assets, sell assets, enter into contractual agreements, and even inherit assets. There are a variety of reasons why you might want a trust to own assets and your reasons will directly impact which assets you choose to transfer into the trust that you create. Some common assets used to fund a revocable living trust include:
- Bank accounts
- Stocks, bonds, and securities
- Investment accounts
- Life insurance policies
- Real estate (houses, commercial property, land)
- Oil and mineral rights
- Business assets
- Art and other collectibles
- Intellectual property rights
Is There Anything I Should Avoid Using to Fund My Revocable Living Trust?
With some assets, it may be legal to use the asset to fund your revocable living trust but for one reason or another it is not a wise idea. For example, transferring an IRA or 401(k) retirement account into your trust may be viewed as a withdrawal from the account, triggering a tax penalty that you would undoubtedly prefer to avoid. Checking and savings accounts that you use on a regular basis, for personal or business reasons, should only be transferred into your trust if you are the Trustee of the trust. Once a bank account becomes trust property, the Trustee must approve distribution of the asset. If you are not the Trustee, you would have to get the Trustee’s approval every time you withdraw funds from the account. The same analysis may apply to other assets that you need regular access to or that you anticipate needing to sell or encumber in the near future.
Do You Have Questions about How to Fund Your Revocable Living Trust?
To learn more, please join us for an upcoming FREE seminar. If you have questions about how to fund your revocable living trust, please contact an experienced Vero Beach trust attorney at Kulas & Crawford by calling (772) 398-0720 to schedule a consultation.