What Assets Should Be Placed in a Living Trust?
Creating a revocable living trust is one of the most effective ways for Californians to simplify the transfer of assets after death and avoid probate. However, simply signing a trust agreement is not enough. For a living trust to accomplish its intended purpose, it must be properly funded, which means transferring ownership of appropriate assets into the trust.
At Georgia N. Kezios, we often explain to clients that creating a trust is only the first step. The second—and equally important—step is making sure the right assets are titled in the name of the trust. Otherwise, those assets may still have to go through probate, defeating one of the primary reasons for creating the revocable living trust in the first place.
What Does It Mean to “Fund” a Living Trust?
Funding a living trust means changing ownership of certain assets from your individual name to the name of your trust. For example, instead of your home being owned by “John Smith,” it may be owned by “John Smith, Trustee of the John Smith Revocable Living Trust.”
Although the legal owner changes, you remain in complete control of your property. As the trustee of your own revocable living trust, you can continue buying, selling, refinancing, or managing your assets just as you did before. You can also amend or revoke the trust at any time while you remain mentally competent.
Proper funding ensures that your successor trustee can manage and distribute those assets according to your wishes without unnecessary court involvement.
Real Estate Is Often the Most Important Asset to Transfer
For many California families, their home is their most valuable asset. It is also one of the primary reasons to establish a living trust. If real estate remains titled solely in your individual name when you die, it will likely have to pass through probate. By transferring ownership of your home, rental property, vacation home, or other California real estate into your living trust, you can allow those properties to pass directly to your beneficiaries without probate. If you own property in more than one state, placing those properties in your trust can also help your family avoid multiple probate proceedings in different jurisdictions.
Financial Accounts Can Often Be Retitled
Many financial assets can also be transferred into a living trust. Depending on the institution, this may involve completing new account paperwork or updating the ownership records. Examples include:
- Checking and savings accounts
- Money market accounts
- Brokerage and investment accounts
- Certificates of deposit
- Non-retirement investment accounts
Because each financial institution has its own procedures, it’s important to ensure ownership changes are completed correctly and reflected in the institution’s records.
Business Interests May Also Be Appropriate
If you own a business, your ownership interest may be transferable to your living trust. Whether this makes sense depends on the type of business and any governing agreements. For example, ownership interests in a limited liability company (LLC), closely held corporation, or partnership may often be assigned to a trust, although operating agreements, shareholder agreements, or partnership agreements may contain restrictions that need to be reviewed first. Including business interests in your estate plan can help provide continuity and make it easier for your successor trustee or heirs to manage your affairs.
Personal Property Can Be Included
Many forms of personal property can also become trust assets. These may include valuable collections, jewelry, artwork, antiques, firearms that are legally transferable, and other tangible personal property. Household furnishings and everyday personal belongings are also commonly addressed through a trust or a related assignment of personal property. Some individuals also prepare a separate memorandum identifying who should receive sentimental items, helping reduce misunderstandings among family members.
What About Retirement Accounts?
Retirement accounts are treated differently from most other assets. Generally, accounts such as IRAs and 401(k)s are not retitled into a revocable living trust during your lifetime. Instead, they usually pass through beneficiary designations. Naming the proper beneficiary is often more important than placing these accounts into a trust. In some situations, however, naming a trust as the beneficiary of a retirement account may be appropriate, particularly when planning for minor children, beneficiaries with disabilities, or complex family circumstances. These decisions should be made carefully because they can affect tax consequences and required distributions.
Life Insurance Is Also Different
Like retirement accounts, life insurance policies generally pass according to beneficiary designations rather than through your will or living trust. In many cases, individuals simply review and update their beneficiary designations as part of their estate plan. Under certain circumstances, however, naming a trust as the beneficiary may provide greater control over how insurance proceeds are managed and distributed. The appropriate approach depends on your goals and family situation.
Assets That Are Commonly Overlooked
One of the most common reasons living trusts fail to avoid probate is that certain assets are unintentionally left out. People often forget to transfer newly purchased real estate, open new financial accounts in their own names, or acquire valuable assets years after establishing their trust. If those assets are never transferred into the trust, they may still require probate. For this reason, it’s a good idea to review your estate plan periodically, especially after purchasing property, opening new investment accounts, starting a business, getting married, getting divorced, or experiencing another significant life event.
A Living Trust Is Part of a Larger Estate Plan
While a living trust is an excellent planning tool, it is only one part of a comprehensive estate plan. Most people with a revocable living trust should also have a pour-over will, which directs any assets accidentally left outside the trust to be transferred into it after death. Although those assets may still have to go through probate, the will helps ensure they ultimately become part of the overall estate plan.
A complete estate plan also typically includes an Advance Health Care Directive and a Durable Power of Attorney for Assets. These documents address healthcare and financial decisions during your lifetime if you become unable to manage your own affairs.
Regular Reviews Keep Your Estate Plan Working
Estate planning is not a one-time event. As your life changes, your trust should evolve with it. Buying a home, selling property, welcoming children or grandchildren, retiring, or acquiring new investments may all require updates to your trust or the assets held within it. Periodic reviews can help ensure your estate plan continues to accomplish your goals and minimize unnecessary complications for your loved ones.
Speak With a California Estate Planning Attorney
A revocable living trust can be one of the most effective estate planning tools available, but only if it is properly funded. Understanding which assets belong in your trust and which should pass by beneficiary designation is essential to creating a plan that works as intended. If you are considering a living trust or want to review an existing estate plan in Los Angeles, Orange, or Riverside County, contact Georgia N. Kezios in Cerritos. We can help you determine which assets should be included in your trust and create a comprehensive estate plan designed to protect your family and preserve your wishes.