The Complete Guide to California Trust Funding

TL;DR: If you create a trust but overlook proper funding, your assets may be subject to probate after your death. Here’s an overview of how to transfer each type of commonly owned asset into your California revocable living trust. 

When it comes to estate planning in California, one of the most crucial steps is trust funding. A well-funded trust ensures that your assets avoid probate and are properly distributed according to your wishes. However, many people create a revocable living trust to avoid Probate Court, but overlook the next step of funding that trust. If assets are left outside of their trust, their estate often ends up needing to go through probate after their death, defeating one of the primary purposes they created a trust in the first place! 

At Goff Legal, our experienced estate planning attorneys understand the common trust funding mistakes that can undermine your estate plan. In our Complete Guide to California Trust Funding, we’ll walk you through everything you need to know about how to fund a trust, why it’s essential, and how to do it correctly.

What Is a Trust, and Why Is Trust Funding Important?

A trust is a legal arrangement that allows a person (the “grantor” or “settlor”) to transfer assets to a trustee, who then manages the assets for the benefit of beneficiaries. There are several types of trusts, with a revocable living trust being one of the most common in California. Unlike a will, a trust does not go through the probate process, which can be time-consuming, costly, and public. Trusts are an efficient way to ensure that your assets are distributed privately and in a timely manner.

However, a trust is only as good as its funding. Trust funding refers to the process of transferring ownership of your assets to your trust. If you don’t fund your trust, your assets will not be protected by it, and your estate may still have to go through probate, defeating the purpose of having a trust in the first place.

The Different Types of Assets You Can Fund Into Your Trust

When you fund a trust, you transfer ownership of various assets into it. Here are the most common types of assets that can be transferred into a trust:

Real Estate

Real estate is often one of the most valuable assets in an estate. To fund your trust with real estate, you’ll need to execute a deed that transfers the property title to the trust. This includes your home, vacation properties, and any investment properties you own. If you’re working with a trust attorney, they should draft this deed on your behalf. The deed must be recorded with the county recorder in the county where the real property is located.

Bank Accounts

Bank accounts, including checking, savings, and money market accounts, can be funded into your trust. You will need to contact your bank to change the account title to reflect the new ownership, which should be you “as trustee of [the name of your trust]”. Some banks may allow you to name your trust as a “payable-on-death” beneficiary, which allows you to keep control of the account during your lifetime while ensuring that it passes to your beneficiaries after your death.

Investment Accounts

Similar to bank accounts, investment accounts (such as brokerage accounts) can be transferred into your trust. This typically involves retitling the accounts in the name of the trust. Contact your brokerage/financial advisor and inquire about their specific procedures for transferring an account to a trust. However, keep in mind that retirement accounts, such as IRAs and 401(k)s, will not be transferred into your trust, as they can only be owned by individuals. Instead, you can name the trust as a beneficiary designation if you wish. Alternatively, name the individual(s) you would like to inherit these assets as the beneficiaries.

Life Insurance Policies

Like retirement accounts, life insurance policies are usually owned by individuals, not trusts. But depending on the type of trust and policy, the trust might be the best owner of a policy. Good news though, if you wish for the life insurance proceeds to be distributed as outlined in your trust, you can name your trust as the beneficiary of your life insurance policy. Alternatively, you can name different individuals as beneficiaries of the policy.

Business Interests

If you own a business, you can fund your trust with your business interest. This could include stocks in a corporation, membership interests in an LLC, or partnership interests. Business succession planning is especially important for entrepreneurs, as it allows for a smooth transition of ownership and management when you’re no longer able to run the business yourself. Consult your estate planning attorney for help transferring business interests into your trust.

Personal Property

Personal property is often addressed with a Letter of Instruction for your successor trustee. This is a letter you can draft on your own at any time, providing guidance and details for your trustee regarding your wishes about who will receive your personal property after your death. While this may not be a legally binding document, it is a useful supplement to a well-drafted estate plan and can minimize confusion and conflict after your death. Sometimes, these are legally binding, so talk with your attorney about your wishes and if you draft this letter, send a copy to your trust attorney to add to your estate planning file. 

Vehicle

In California, most vehicles aren’t valuable enough to trigger a probate on their own, and changing the title may not be worth the time required. However, if you own a high-value vehicle and want to transfer it into your trust, you’ll need to complete a title transfer with the California Department of Motor Vehicles (DMV). Visit their website for detailed instructions on how to complete this transfer.

The Steps to Fund Your Trust in California

Funding your trust can be a straightforward process, but it requires careful attention to detail. Follow these steps to ensure that your trust is fully funded and your assets are protected:

1. Review Your Trust Document

Before you begin transferring assets into your trust, review your trust document carefully. Make sure it is up to date and accurately reflects your intentions. You may need to update the trust if there have been significant changes in your life (think marriage, divorce, the birth of children, or changes in who you want to name as your agents or beneficiaries). If you’re unsure whether your trust has been properly drafted or if you want to amend your trust, consult with an estate planning attorney.

2. Make a List of Your Assets

The next step is to make a comprehensive list of your assets, including real estate, bank accounts, investments, life insurance policies, business interests, and personal property. Organize them by category and note the current ownership details for each asset. This will help you identify which assets need to be transferred into your trust. At Goff Legal, we prepare a thorough list of assets for our clients, known as a “Schedule of Assets”. 

3. Retitle Your Assets

To fund your trust, you’ll need to retitle assets in the name of the trust. For real estate, you’ll need to execute a deed transferring the title to the trust. For bank accounts and investment accounts, you’ll need to contact your financial institutions to update the account titles. For personal property, you’ll typically create a list (known as a “memorandum of personal property”) that identifies the assets and how they should be distributed.

4. Update Beneficiary Designations

Some assets, such as life insurance policies, retirement accounts, and bank accounts, allow you to designate a beneficiary. If you want these assets to be governed by your trust, you’ll need to update the beneficiary designations to name the trust as the beneficiary. This step is critical for ensuring that these assets are distributed according to your wishes.

5. Transfer Business Interests

If you own a business, consult with a business attorney to ensure that your business interests are transferred into your trust correctly. This may involve updating ownership documents, such as stock certificates or LLC operating agreements, to reflect the trust as the owner.

6. Keep Records of All Transfers

As you fund your trust, it’s essential to keep detailed records of all asset transfers. This will help your trustee manage the assets properly after your death and ensure that everything is in order when the time comes to administer your estate.

Common Mistakes to Avoid When Funding Your Trust

While trust funding is an essential step in estate planning, many people make mistakes along the way. Here are some common errors to avoid:

1. Failing to Fund the Trust: The most common mistake is failing to fund the trust at all. Without proper funding, your trust is essentially useless. It’s important to follow through and transfer your assets into the trust as soon as possible. At Goff Legal, we offer white glove trust funding services for clients seeking extra support with this process.

2. Leaving Assets Out of the Trust: Another mistake is forgetting to transfer certain assets into the trust. Be sure to review your asset list carefully and ensure that everything is accounted for. Sometimes, people forget to fund their vehicles or certain personal property items into the trust.

3. Not Updating Beneficiary Designations: If you forget to update the beneficiary designations on life insurance policies, retirement accounts, or other financial assets, those assets may not pass according to your trust’s instructions. Make sure all beneficiary designations are aligned with your estate planning goals.

4. Not Seeking Professional Help: Funding a trust can be complex, especially if you have business interests, real estate holdings, or other unique assets. It’s always a good idea to consult with an experienced estate planning attorney to ensure that your trust is properly funded.

The Benefits of Trust Funding

Properly funding your trust has several key benefits, including:

• Avoiding Probate: By funding your trust, you can avoid the lengthy and costly probate process, which can be especially burdensome in California.

• Ensuring Your Wishes Are Followed: When your trust is funded, your trustee can easily distribute your assets according to your wishes during the trust administration.

• Protecting Your Privacy: Trusts are private documents, meaning your estate and its distribution will not become public record, as a will would in probate.

• Providing for Your Loved Ones: Proper trust funding ensures peace of mind that your family and loved ones will receive their inheritances in a timely and efficient manner.

Seek Legal Counsel When Funding Your Trust

Trust funding can be a straightforward process if you have the right guidance. If you’re ready to fund your trust or if you need assistance reviewing or updating your estate plan, the experienced estate planning attorneys at Goff Legal are here to help. As a woman-owned, boutique estate planning law firm in California, we’re committed to providing instruction, reminders, and following up with our clients to ensure their trusts get properly funded. We also provide white glove trust funding services by request. 

If you have questions about how to fund a California trust or need help getting started, contact us today to schedule your free discovery call!

FAQs:

Do I have to fund my trust immediately after it’s created?

While it’s not required to fund your trust immediately after it’s created, it’s essential to do so as soon as possible to ensure that your assets are properly protected. If you delay funding, your estate may still have to go through probate, which could defeat the purpose of setting up the trust in the first place. It’s best to fund your trust shortly after its creation to ensure a smooth transfer of assets.

Can I still manage my assets if they are in my trust?

Yes, as the grantor of a revocable living trust, you retain full control over the assets while you’re alive. You can buy, sell, or transfer assets, such as real estate or financial accounts, just like you would if they were not in the trust. The key is that the title of the asset should reflect the trust as the owner. You can make changes or revoke the trust at any time, provided you are mentally competent.

What happens if I don’t transfer certain assets into my trust?

If you forget or neglect to transfer certain assets into your trust, those assets may be subject to probate when you pass away. This could lead to delays, additional costs, and possibly an outcome that is inconsistent with your intentions. It’s crucial to carefully review your list of assets and ensure that everything, from real estate to bank accounts, is properly titled in the name of the trust.

Can I fund my trust with digital assets like cryptocurrency or online accounts?

Yes, you can transfer digital assets such as cryptocurrency, online bank accounts, or even digital media collections to your trust. However, these assets may require special consideration. You’ll need to ensure that the proper documentation, including private keys or account access information, is provided to your trustee. It’s important to clearly outline how these assets should be managed in your trust’s instructions.

Do I need to hire an attorney to fund my trust in California?

While it’s not strictly required to hire an attorney to fund your trust, it’s highly recommended to consult with an attorney when preparing and funding your documents, especially if you have complex assets or want to ensure that the process is done correctly. An experienced estate planning attorney can help guide you through the steps, assist with title transfers, and ensure that all assets are appropriately aligned with your trust’s terms.