When creating a revocable trust, it is important to understand how to transfer assets to your trust. We call this process “trust funding”. To obtain the benefits of probate avoidance and the other benefits of having a trust, it is very important that the trust be properly funded during your lifetime. You should transfer your property to the trust as soon as possible. It is recommended that you begin the trust funding process as soon as your trust has been signed. If you unexpectedly pass away and assets have not been transferred to your trust, you may be required to initiate the probate process.
Note, however, before transferring ownership or changing beneficiary designations of any retirement accounts or annuities to your trust, please contact a tax professional regarding tax consequences that might result. Even though your retirement accounts and annuities may not be owned by the trust, probate can still be avoided as long as there are designated beneficiaries on these accounts. These beneficiaries typically coordinate with your trust.
All transfers of ownership must be accomplished by executing appropriate instruments of transfer to be effective for state law purposes. For example, real estate should be transferred to the trust by a deed, bank accounts should be transferred to the trust by changing the name on the accounts, and stock certificates not in “street name” should be transferred to the trust by issuing a new certificate in the name of the trust. It is important to ask your attorney if you have questions on the appropriate way to retitle your assets.
When funding your trust, assets that are intended to be owned by a trust can be styled in several different ways. When possible, choose a styling that contains as much information as possible to include the trustee of the trust, the name of the trust, and the date of the trust. You don’t want there to be any confusion as to the intended owner of the asset.
While you are living, your revocable trust is designed to be a pass-through entity for tax purposes. Therefore, all income and expenses will be taxed to you. As such, you can use your social security number as the tax identification number of the revocable trust while you are alive. You can report trust income on your individual or joint income tax return, and no trust tax return will need to be filed while you are living.