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The advantages of a living trust are that it avoids probate proceedings at death, it avoids complications if a trustee becomes incapacitated, and, for husband and wife, it may save estate taxes at death.
For the trust to do this it is not sufficient merely to sign the trust agreement. It is also necessary to register assets in the name of the trustee or trustees. If assets are not titled in the trust name, these assets may require a probate proceeding at death or may reduce the estate savings for husband and wife. It is therefore necessary to transfer most, but not all, assets owned by the individual or couple into the trust name.
If an unmarried person is establishing a trust, assets will normally be registered in the name of—"Mary R. Doe, Trustee of the Mary R. Doe Living Trust dated August 15, 1997."
If a husband and wife established a trust, they will generally take title to assets in their names as—"Frank R. Smith and Martha T. Smith, Trustees of the Frank R. Smith and Martha T. Smith Living Trust dated July 24, 1997."
Frequently, banks, savings and loan associations, brokerage firms and others change this wording, sometimes reducing it so it will fit into the firm's computer. The above wording does not have to be repeated exactly on the documents, but it is important to list the name or names of the current trustee, the name of the trust and the date that the trust was signed.
Trustors who act as their own trustees for a revocable trust do not need to get a tax identification number. An unmarried person's social security number may be used, or in the case of a married couple, the social security number of either husband or wife may be used. For income tax purposes no trust tax returns are required. The individual or couple reports the taxable income on their personal income tax return as if there were no trust.
Under California law if a person dies with more than $100,000 of assets in that person's name alone, these assets have to go through probate. The $100,000 figure does not include any vehicles no matter how they are registered. If the amount is less than $100,000 no probate proceeding is required, but the person legally entitled to inherit the assets can, after 40 days, fill out a form and obtains the bank account, stock or other asset.
Not counted in the above $100,000 figure are assets in a living trust, assets registered in joint tenancy, or assets subject to a beneficiary designation such as life insurance, annuities, and IRA accounts. Most persons who have a living trust also have a "pour-over" will, which adds at death to the living trust any assets which have been missed and are still in the decedent's name alone.
It is therefore very important to transfer most assets into the living trust registration. Normally, furniture and furnishings, vehicles, and small bank or savings and loan accounts are not transferred.
It is necessary to record with the county recorder in the county where the real estate is located a deed from the individual or husband and wife, as their names appear on the current deed, to the trustee or trustees of the living trust. In California when the deed is recorded it is also necessary to submit a Preliminary Change of Ownership Report with the deed notifying the local county assessor as to whether the property is subject to reassessment. A transfer to a revocable living trust is exempt from reassessment.
When you loan money and the loan is secured, then you as the lender have a "deed of trust" on the property. This is a recorded real estate document. An assignment of deed of trust needs to be recorded in the county where the real estate is located.
It is necessary to contact each financial institution and to advise them that you have a living trust and that you wish to transfer your account or accounts into the trust name. Normally, personal checking accounts are not transferred into the trust name but are left out of the trust.
An account with a brokerage firm needs to be transferred. You need to phone your broker and get the necessary forms to do this.
If you personally have the certificates for stocks or bonds, you need to mail in the certificates (registered mail, insured for approximately 5% of the current stock value, return receipt requested) to the transfer agent for that company. You need to include a letter explaining the transfer and an irrevocable stock power bearing a "Medallion" signature guarantee for each company.
If you have a stock reinvestment account, you need to contact the stock agent who handles it and transfer the stock and the account into the living trust. This normally has to be done separately from the transfer of the shares in the company which are not in the reinvestment account.
Each mutual fund needs to be phoned (they usually have an 800 number). Ask the shareholder's services department to send forms to transfer the fund shares into the trust name.
You need to contact the general partner to find out what documents are required to transfer the partnership share to the trust. The name and address of the general partner is shown on the tax statement (K-1 form) sent to each partner annually.
Oil royalties are difficult to transfer. A deed has to be recorded for the mineral rights in the county and state where the mineral rights are located.
A copy of the recorded real estate deed then has to be sent to the oil company with a request that their records be changed to reflect the trust as owner.
Transferring real estate which is in another state or country requires the filling out of a real estate form (usually a deed of some type) in that state or country. Real estate forms vary from state to state. It is usually necessary to contact a real estate broker or attorney in the local area where the property is located to get it transferred. There frequently are forms required by the local governmental agency which also must be completed before a deed can be filed.
To transfer a deed of trust or mortgage payable to you but secured by real property outside California, you need to file a real estate form in the local county where this real estate is located. A real estate broker or attorney is normally required for this.
Life insurance policies with a large amount of cash value are usually changed so that the owner is the living trust. Policies with little or no cash value do not need to have an ownership change. A change of beneficiary form is always put through naming the trust as the primary beneficiary. Since life insurance is controlled by the beneficiary designation, the money will be payable to the trust at the death of the owner. You should contact the insurance company or agent to obtain a change of beneficiary form and name the trust as the primary beneficiary.
Changes to the owner and beneficiary designations of annuity contracts are normally advisable when a living trust is created. However, the relationship between the trustor and annuitant coupled with the desire for extended tax deferral will dictate the optimum combination of owner and beneficiary designations. You should work with your agent on this matter before making any changes.
The term "employee benefits" is intended to include corporate pension and profit sharing plans, 401(k) plans, IRA accounts, tax sheltered annuities (TSA), Keogh plans, and other plans where funds have been set aside tax-free for an employee. Because these benefits are taxable for both income and estate planning purposes, normally the spouse is named as the primary beneficiary and the children as the secondary beneficiaries. If there is no spouse, the children may be named as the primary beneficiary with the trust as the secondary beneficiary.
Vehicles, boats, and furniture are generally not transferred into the trust. Other assets, such as stock in a closely held corporation, a sole proprietorship, airplane, book royalties, and other assets all have to be determined individually.
Transfer of assets is important to avoid probate and to allow the maximum amount to be sheltered from estate tax for husband and wife.
İMilton Berry Scott, 2005