Funding Your Living Trust, Part 1
Once you have signed your living trust document, the next step is to change titles and beneficiary designations to your trust. This is called "funding" your living trust.

This is probably the most important part of getting a living trust. If you have signed your living trust document but haven't changed titles and beneficiary designations, you've simply wasted your money. You may have a great trust, but until you fund it, it doesn't control anything - because your living trust can only control the assets you put into it.

Remember, when you put assets in your living trust, you do not lose control of them. You can continue to buy and sell assets just as you did before. And anything you put into your living trust can always be taken out later.

In this section, we'll discuss who is responsible for funding your trust, how difficult this process is, and then explain the general procedures for changing titles and beneficiary designations for the most common types of assets people own. We suggest that you look for the ones you own and skip over the others. If you own something that is not included here, your attorney can tell you how to put it into your trust.

You should know, before your trust is set up, how much of the funding process the attorney will do. Some of the attorneys we know will do all the funding. They want their clients' trusts to be as effective as possible, so they personally make sure everything is put into the trust properly.

Usually, however, it is a combination of the attorney doing some and you doing some. Ideally, your attorney should review each asset with you, explain the procedure to you, and together you should decide who will be responsible for each asset. Many attorneys will put your home in your trust for you at no additional cost. Some also have legal assistants who can put other assets in your trust for you at a lower hourly rate than if the attorney does it.

Depending on how much the attorney charges, how comfortable you are with the process, how much time you have, and how interested you are in keeping your costs down, you may want to do many of them yourself.

Most attorneys have pre-written letters you can send to your bank, investment broker, insurance company, etc. that tell them how your assets should now be titled. At the least, your attorney should give you very specific instructions and the exact wording to use for titles and beneficiary designations. The wording will include the name(s) of the trustee(s), the name of your trust, and the date you sign the trust document. So it will be something like this: " John Doe and Mary Doe, Trustees of the Doe Family Trust, dated month/day/year."

As you will see in the next few pages, most titles and beneficiary designations are not difficult to change. Some are done by using an assignment, a short (usually one-page) document your attorney will prepare that identifies the asset and states that you are transferring its ownership to your living trust.

Others will require written instructions from you, giving the institutions the exact wording to use on the titles and beneficiary designations (usually the pre-written letters from your attorney will be all you need). Some institutions have their own forms that you will need to complete (for example, life insurance companies have standard forms to change the beneficiary on policies).

Most changes can be handled through the mail and by telephone. Some will require your signature to be notarized or guaranteed (we'll explain who can do this for you).

Even though the process itself is not really difficult, it will take some time. How much time will depend on how many titles and beneficiary designations you have to change and how quickly the institutions respond. Most will be cooperative. However, you may encounter a few people who are still unfamiliar with living trusts. (Since living trusts have become so popular, this doesn't happen as often as it used to.) If you do have any difficulties, usually a quick call from your attorney will clear things up.

If you decide to do most of the funding yourself, we suggest that you make it a priority and keep going until you're finished. Start with your assets that have the largest values, then work down to the smaller ones. Remind yourself why you are doing this - and look forward to the peace of mind you'll have when your living trust is complete.

Now let's look at how titles and beneficiary designations are changed.


If You Live In a Community Property State
If you live in one of the eight community property states, your attorney may suggest that jointly-owned assets - especially real estate - be retitled as community property before they are put in your trust.

As we explained in Part One, when one spouse dies, community property assets receive a full step-up in basis. This reduces the capital gains tax that would be due when the assets are eventually sold. With joint ownership, only the deceased's share would receive a step-up in basis - so you would have a bigger gain (profit) when the assets are sold, and would pay more in capital gains tax.

Community property status can be retained when the assets are put in your living trust. So, by retitling jointly owned assets as community property first, you will get the full step-up in basis when one spouse dies.

If You Live in a Noncommunity Property State
If you live in a noncommunity property state and have owned an asset jointly with your spouse since before 1976, the asset may be entitled to a full step-up in basis when one spouse dies. If you change the title on it now (even to your living trust), you could lose the full step-up - the deceased spouse's share would still get a step-up, but the surviving spouse's share would not. This could cause your surviving spouse to pay more in capital gains tax if he/she decides to sell the asset after you die.

If the asset is your personal residence, losing the full step-up will not be a problem unless the gain is more than $500,000. (If you are married, up to $500,000 of the gain on the sale of your personal residence is now exempt from capital gains tax. See page 167.) But it could be a problem for other assets like farmland, commercial real estate or stocks.

If this sounds like it could apply to your situation, check with your tax advisor before you change the title. (For more information, see Gallenstein v. United States, a 1992 Sixth Circuit Court of Appeals case. Other circuit courts have followed this ruling in similar cases.)

Your Home, Real Estate, Land, Condominium, Etc.
Depending on the state in which the property is located, a correction deed, grant deed, warranty deed, assignment, or quitclaim deed will be used to change the titles of real estate to your living trust.

The new deed will include how the property is titled now (before you put it into the trust), what the new title should be (to put it into your trust) and the legal description of the property. The deed for each property will be signed by you, witnessed, notarized, and recorded in the county where the property is located.

Again, your attorney will probably put your home in your living trust for you at no extra cost. This is usually a good idea since the home is the most valuable asset most people own, and the legal description and titles must be exact.

Out-of-State Property
If you own property in another state, you will want to transfer it to your living trust to prevent a conservatorship and/or probate there. Your attorney can contact a title company or an attorney in that state to handle the transfer for you.

You may also be able to do part (or all) of it yourself. First find out what is involved - check with an attorney or escrow office in that state to find out the proper form to use, to verify the process, and to get the name and address of the recording office. In some states, your trust may have to be recorded - if so, a certificate of trust should be all that is needed. However, it may be more convenient (and wise) to have the local attorney or escrow office handle the transfer for you.

Current Mortgage
Putting real estate - especially your home - into your living trust should not disturb your current mortgage in any way. Even if the mortgage contains a "due on sale or transfer" clause, retitling your home in the name of your living trust should not activate the clause. (It would still be a good idea to contact the lender before you transfer the property so you don't inadvertently activate the clause, especially if you own rental property or commercial real estate. The lender may charge a small fee to approve the transfer.)

In the past, some people who wanted to put their homes into their living trusts were met with resistance. Many banks, savings and loans, and mortgage companies (called primary lenders) who write home mortgages simply did not understand living trusts. Many were also afraid the secondary lenders - institutions who buy home mortgages from these primary lenders, providing them with more money to loan out - would not buy mortgages if the borrower was a living trust instead of an individual.

But things have changed as living trusts have become so popular. Fannie Mae, Freddie Mac and Ginnie Mae (which buys FHA home mortgages) - the major secondary lenders - all now consider a revocable living trust to be an "eligible borrower" as long as normal guidelines are met (for example, the property must be owner-occupied, they want to make sure the trustee is authorized to borrow against the property, and they usually want the owner to be a trustee, which most people are anyway).

These recently published guidelines will make it much easier to transfer your home into your living trust, to refinance your home after it is in your living trust (without having to temporarily remove it from the trust), and even to purchase new real estate in the name of your living trust.

If you do run into resistance, it will probably be from a lender who has not informed its loan officers about living trusts or simply doesn't want to change the way it does business. If this happens to you, you can always take out the mortgage in your personal name and then transfer the property to your living trust after the closing - or you may want to find another lender.

Homeowner's, Liability, and Title Insurance
Your homeowner's and liability insurance should be changed to reflect your living trust on the title and the trustees as additional insured. (If you are your own trustee, it will show you as trustee instead of you as an individual.) Your agent will be able to make this change for you (probably at no charge). Usually all the insurance company will need is a letter of instruction from you and a copy of the new deed.

Title insurance should also be changed. Check to make sure your title insurance company will still insure title when your living trust is the owner of the property. Most will. In fact, one of the largest title insurance companies routinely issues title insurance when the property is in a living trust. (And they do not require a separate title search.)

Property Taxes
Most owners of real estate pay a property tax every year based on the appraised value of the property. Transferring real estate to a living trust should not cause your property to be reappraised because the underlying ownership is the same (remember, it's your trust) and because the trust is revocable (remember, you can take the property out of your trust and put it back into your individual name at any time).

Even so, you may need to notify the tax assessor's office. In California, for example, a "Preliminary Change of Ownership Report" must be filed. This is a simple form (with check boxes) that the attorney usually completes at the same time the new deed is prepared.

Transfer Tax
Generally, a transfer tax is charged whenever property is sold. Putting real estate into a living trust does not constitute a sale, because you can take the property out of the trust at any time. So, in most states, there will be no transfer tax when you transfer property to your living trust.

However, a few states and counties are looking for creative ways to raise revenue and they may charge a transfer tax anyway. For example, Pennsylvania used to charge a transfer tax when real estate was transferred into a living trust and any beneficiary was someone other than a spouse, grandparent, parent, child, grandchild (and spouse) or sibling (and spouse). So if you named a friend or a charity as a beneficiary of your living trust (even as an Alternate beneficiary), you had to pay a transfer tax on real estate you put into your living trust. This tax was recently repealed, specifically for living trusts.

Exemption From Capital Gains Tax When Residence Sold
Previously, if you were over age 55, you were allowed a one-time $125,000 exemption of the gain (profit) on the sale of your home. Also, if you sold your home and bought a new one for at least the same price within two years, the profit from the sale of your previous residence was exempt from capital gains tax, providing you had owned and made this house your principal residence for at least three of the previous five years. Putting your home in a living trust had no effect on either of these exemptions.

Thanks to The Taxpayer Relief Act of 1997, we have a new capital gains tax exemption that replaces these two previous ones. Now, under current tax law, if you sell your home and you are single, up to $250,000 of your gain (profit) will be exempt from capital gains tax - providing you have owned and made the house your principal residence for at least two of the past five years. (If you are married, up to $500,000 will be exempt.) You can use this exemption only once every two years. Having your home in a living trust will have no effect on you getting this new capital gains tax exemption.

Homestead Exemption From Creditors
As we explained in Part Two, part or all of the value of your home may be protected from creditors' claims under your state's homestead laws. Putting your home in a living trust should not cause you to lose this protection.

Rental Real Estate
Under current tax law, the expenses you have from rental real estate (including mortgage interest, property taxes, insurance, repairs, depreciation and other operating expenses) can usually be deducted only from rental income.

If you don't have enough rental income (called "passive income") to offset your expenses (called "passive losses") in the year they are incurred, you can carry the excess losses ("net losses") forward and deduct them from rental income in subsequent tax years. If you have not been able to deduct all of your losses by the time you sell the property, you can write them off then.

As usual, there are exceptions:

1. If you earn your living mainly in the real estate business (for example, you are a contractor, builder or broker), you may not be affected by these "passive loss" rules.

2. If your Adjusted Gross Income (as defined on IRS Form 1040) is less than $150,000 and you actively participate in the management of the property (approve repairs and new tenants, write checks, make management decisions, etc.), you can deduct up to $25,000 ($12,500 if married filing separately) in net losses each year from your ordinary income (wages, tips, etc. as defined by the IRS on Form 1040). (If your AGI is more than $100,000, the $25,000 is gradually phased out so that, by the time the AGI is $150,000, the amount of passive net losses that can be deducted from ordinary income is reduced to "0.")

Transferring rental real estate to your living trust does not affect the way you handle these losses while you are living. However, if you are currently allowed to deduct up to $25,000 in net losses from your ordinary income, these losses may be handled differently after you (and your spouse) die. For a full explanation, see Part Eight.

If You Suspect the Property is Contaminated
You can still put contaminated property in your living trust but the trustee can personally be responsible for any clean up. As we explained in Part Two, if you are your own trustee, this won't affect you because you are already responsible. But, remember, if the clean up is not complete by the time your successor trustee steps in, he/she (and, ultimately, your beneficiaries) can also be liable. If you suspect that property you own may be contaminated, be sure to read the discussion of this in Part Two. And make sure you tell your attorney before you transfer the property to your trust.

Credit Cards, Notes You Owe
Setting up a living trust should not affect any credit cards, loans or notes you owe. These are not assets, so you don't need to do anything with them. You just continue making your required payments as usual.

Mortgages, Loans, And Notes Owed To You
If you have "owner-financed" any assets (for example, you "took back" a note on a house you sold), loaned someone money or have any other notes payable to you, you will need to assign these mortgages/loans to your living trust. This is done by an assignment (as we explained earlier). It is signed by you only (not the other party), notarized and attached to the original document. If the original mortgage was recorded, some attorneys will also record the assignment.

If you have loaned someone money without documenting the loan, this would be a good time to put it in writing to prevent disputes over the terms and nature of the loan. Write up the terms of the loan and have it signed by the other party. An assignment can then be prepared to transfer the loan to the trust.

Checking, Saving, And Pay-on-Death Accounts
You will need to change the ownership of your checking and saving accounts to your living trust. New signature cards will then need to be signed by the trustee(s). If you are your own trustee, you can sign the signature cards with just your usual signature.

You may need to sign new account agreements. Some institutions will require a new account, with a new account number and new checks. If you are your own trustee, the information on your checks does not need to change - they can still be printed with just your name, address, and telephone number on them - and you continue to sign checks the same way you always have.

If you have named beneficiaries on any accounts, you'll want to change them to your living trust. For example, you may have established an account and named your spouse, child or grandchild as the beneficiary. These are called "Totten trusts." The account title probably includes the words "in trust for" (or "ITF"), "as trustee for" (or "ATF"), "payable-on-death" (or "POD"), or "transfer on death" (or "TOD").

Remember, by changing the beneficiary on these to your living trust, you prevent the possibility of the court taking control of the funds if your beneficiary is a minor or incapacitated when you die, or dies before (or at the same time as) you. The institution will probably have its own form to change the beneficiary.

To change the ownership or beneficiary of an account, the institution will probably ask to see a copy of your trust document. Remember, this is for your protection and, as we explained in Part Five, a certificate of trust should satisfy their requirements.

Certificates Of Deposit
These should be retitled in the name of your trust. Some let you name a beneficiary - if yours does, the beneficiary should also be your trust. You do not need to cash these in to do this.

Some institutions will retitle the certificates immediately with no penalties. If yours requires you to wait until the certificate matures, you can go ahead and change the beneficiary and use an assignment to transfer your ownership interest to your trust. Then, when the certificate matures, you can change the title to your trust before you renew it.

Note: This process does not apply to IRAs that are invested in CDs. We discuss IRAs and your living trust later in this section.

What About FDIC Insurance?
The Federal Deposit Insurance Corporation (FDIC) insures deposits at banks and savings associations that are FDIC members for up to $100,000 per account category per institution. "Deposits" include checking and saving accounts, retirement accounts (including IRAs and Keoghs), NOW accounts, and CDs. Securities, mutual funds and other such investments are not considered "deposits" and therefore are not covered by the FDIC.

When you retitle FDIC-insured accounts in the name of your living trust, the insurance coverage may change. In fact, your living trust accounts may qualify for much more FDIC insurance.

The general formula the FDIC uses when determining insurance for living trust accounts is: (the number of grantors living at the time the FDIC-insured institution fails) times (the number of qualifying beneficiaries living at the time the institution fails) times $100,000.

So, for example, if you and your spouse have one living trust together (you are Co-Grantors) and have named your three children and five grandchildren as the beneficiaries - and certain conditions, explained below, are met - your trust would be insured for up to $1,600,000 while everyone is living. (Two Grantors times eight qualifying beneficiaries times $100,000 = $1,600,000.) By contrast, if you and your spouse had a joint account instead, it would only be insured for up to $100,000.

For your living trust to be eligible for this additional coverage, it must meet certain conditions, which include:

The title of the account must indicate that a trust is involved. For example, " John Doe and Mary Doe, Trustees of the Doe Family Trust, dated month/day/year," "Doe Family Trust," and "Doe Family Revocable Trust," would all be acceptable titles.

A qualifying beneficiary can only be a spouse, child or grandchild of the grantor (a parent, sibling, niece, nephew or non-relative does not qualify) and must be listed by name in the "deposit account records" of the institution (for example, on the signature card).

There can be no conditions in the trust that would prevent a qualifying beneficiary from eventually receiving his/her share of the trust after you (and your spouse) die. For example, it is not okay to say that "my daughter will receive her inheritance only when she removes that ring from her nose" or "my son will receive his inheritance when he graduates from medical school" - because if these events never happen, the beneficiary would not receive his/her share.

Credit Union Accounts
Most credit union accounts can easily be transferred to your living trust. To do this, you will need to set up a new account titled in your trust's name and transfer your existing account(s) to it.

Of course, to have an account at a credit union, you must be a member. And in order for your trust to qualify, all "parties" of your living trust - the grantor(s), trustees, and beneficiaries - must be eligible for membership. Since most living trusts only include family members (who are usually eligible to join anyway), this is not a problem for most people.

If you have named a corporate trustee as a successor trustee (which some people do), this may still be okay - because when a corporate trustee steps in, they will usually close the credit union account anyway and transfer it to an account they manage.

If your living trust does not qualify as a member, there are still some things you can do. You can name your living trust as the "pay on death" beneficiary on the account or add your living trust as a "joint owner with right of survivorship" (joint owners do not have to be members). Then, when you die, your credit union accounts will automatically be owned by your trust.

No special membership card or agreement is usually required when you open the new account for your living trust. The credit union will probably ask to see your trust document to make sure it qualifies for membership, what the trustee's powers are, who the successor trustees are, and when they are authorized to step in. (Although they may need to see who your beneficiaries are, they do not need to know how you will provide for them.)

Your trust, just like any other member, will be entitled to vote at annual meetings. However, since the trust is not a person, someone (usually the trustee) will need to be given the authority to vote for the trust .These rules apply to federal credit unions (more than half of the 14,000 credit unions are federally regulated), but even those that are state regulated will often follow these guidelines.

Note: If you think you may want to take out a loan at some point, you should probably keep an individual account with the minimum required balance. That's because your trust would only be allowed to borrow an amount equal to its own value.

Safe Deposit Box
You will need to change the box authorization card to your trust and the trustee(s) will need to sign the card. This will allow your successor trustee to have ready access at your death or incapacity. Your bank or savings and loan officer can help you do this.

Stocks/Bonds/Mutual Funds

• Street Accounts
If you maintain an account in the name of your bank or brokerage company (called a "street account") or invest in a mutual fund, they will need written instructions from you to change the name on your account to your trust.

Call them first to see if you should send a letter of instruction (remember, your attorney will probably include sample letters with your trust) or if they have their own form they can send you - or if they have their own procedures you will need to follow.

They may request that your signature be guaranteed. Your local banker or broker can probably do this for you (just call ahead and make sure). You will sign the form or your letter in your banker's or broker's presence, and he/she will affix a stamp that "guarantees" your signature.

They may also ask to see a copy of your trust document (again, the certificate of trust should be all they need).

• If You Possess Certificates
If you have possession of actual stock and securities certificates, you can set up an account at a brokerage house or other financial institution. They will transfer the titles to the name of your trust for you and keep the certificates for you. This way you do not have to worry about misplacing them, losing them in a fire, or making frequent trips to your safe deposit box.

If you are more comfortable keeping the actual certificates yourself, you will need to have new certificates issued in the name of your trust. (Never write or mark on an original stock or bond certificate.) Your broker or banker can have them reissued for you (they may charge a small fee).

You can also do this yourself. Your attorney can prepare a "stock power," a short document that assigns the securities to the trust, identifies what is being transferred (for example, 50 shares of General Electric stock), the certificate numbers, and the name(s) of the trustees. You'll sign the stock power and have your signature guaranteed (as above).

You'll then need to locate the stock transfer agent . This is the organization that is authorized to transfer title on stocks and bonds. For bonds, the transfer agent is usually the institution from which you receive payments on the bond. If you have stock certificates, don't rely on the name of the transfer agent on the certificate - it may be outdated. Call a brokerage house and ask them. Your attorney may also be able to find out the transfer agent for you.

Send the transfer agent - by certified mail - a letter, instructing them to issue new certificates in the name of your trust; a certificate of trust; and the certificates. Send the stock power separately, also by certified mail. (Do not send the stock power and the certificates together in the same envelope - if someone intercepts them, they would be able to negotiate them.) Make sure you keep copies. And check the new certificates as soon as you receive them.

If you have lost a certificate, contact the transfer agent and request an "Affidavit of Lost Certificate and Indemnity Agreement." Complete and sign the affidavit, and follow the instructions to furnish bond.

Savings Bonds
Series E, EE, H and HH bonds can be transferred to your living trust with no adverse tax consequences. You will continue to receive current income from Series H and HH bonds. Accrued interest on Series E and EE bonds can continue to be deferred until the bond matures.

To have savings bonds re-issued in the name of your living trust, you'll need form PD-1851. If you have named a beneficiary on a savings bond, you can also change it to your trust using form PD-4000. (If you are changing a beneficiary on a Series E bond, the current beneficiary will need to sign the form; if this person is deceased, you will need to send along a death certificate.)

You can call the Federal Reserve Bank yourself to order forms or if you have questions (since forms change, make sure you verify which one(s) you need and the procedure). If you live in the mid-west or western U.S., you can call their customer service number in Kansas City: 1-800-333-2919. If you live in the eastern part of the country, call the customer service number in Pittsburgh: 1-800-245-2804. (By the way, the representative we spoke with was very knowledgeable and helpful - and said they get a lot of calls from people who want to re-issue their savings bonds in the names of their living trusts.)

Automobiles/Boats/Other Vehicles
Most states will permit a vehicle title to be re-issued in the name of your trust. Also, some states now allow you to name a beneficiary for your vehicle. If yours does, your trust should be the beneficiary. In some states, however, this will require the payment of an excise (transfer) tax, just as if the trust had purchased the vehicle.

Take Florida, for example. Currently, Florida has a $100 "new wheels tax" (in addition to other registration fees). This fee does not apply if you trade in your existing car for a new one. But it does apply if you buy an additional car or if you have never owned a car before. So, because your trust has not owned a car before, you will have to pay the "new wheels tax" when you transfer it into your trust. But you will only have to pay it once; you won't have to pay it again if you replace that car with another one.

However, a car is considered "exempt" property in Florida. So, if you plan to leave your car to your spouse or an heir, you don't need to transfer it to your trust and spend the $100. Your spouse or heir can transfer the car title after you die for less than $100. But if you plan to leave your car to someone else, then it is probably worth putting it into the trust and paying the $100 fee. (Don't you just love finding out what's going on in Florida?!)

You may want to call your state's license bureau to find out the process where you live. Depending on the costs involved and the value of the vehicle, you may want to wait until you purchase your next one and title it in the name of your trust.If the value of the vehicle is within the amount your state allows to transfer without probate, your attorney may even suggest that you leave your vehicle out of your trust. (As we explained in Part One, most states allow very small estates - some as low as $15,000 - to transfer without probate.) Also, if you are using a corporate trustee, they may not want to manage your car - unless, of course, it is of considerable value.

If you do title a vehicle in the name of your trust, notify your insurance company so they can change your policy to reflect the change of ownership and list the trustee as an additional insured (if you are your own trustee, it will show you as trustee instead of you as an individual). They may request a copy of the new registration and a letter of instruction from you. They will probably make the change for you at no charge.

Personal Untitled Property
Your attorney will probably prepare an assignment to transfer your personal property (furniture, artwork, clothing, jewelry, cameras, sporting equipment, books, etc.) to your trust. If these articles are of substantial value, you would want them in your trust.

However, if the value of these articles is low enough that a probate would not be required in your state (as we explained above), your attorney may recommend leaving these out of your trust. They could also be intentionally left out if there was a desire to cut off creditor's claims in probate (as we explained in Part Two).

Life Insurance
In many cases, you will want your living trust to be both the beneficiary and the owner of your insurance policies.

Naming your trust as the beneficiary gives you maximum control over the proceeds. It keeps the courts from getting involved if your loved ones are incapacitated, die before you (or at the same time as you), or are minor children. You can keep the proceeds in trust until you want your loved ones to receive the money. You can be sure the money is used to pay your final expenses. And by naming your trust instead of your spouse as the beneficiary, you can even keep control of the funds if your spouse should remarry.

Note: If you live in a community property state and the insurance was purchased with community property funds, your spouse is entitled to half of the proceeds and may need to sign a consent form if you want to name your living trust as beneficiary.

Naming your trust as the owner of your policies gives you maximum control over the policies and more flexibility. For example, if you name your spouse or someone else as the owner, you might worry that they will cancel the policy or change the beneficiary.

If you have a policy that has a cash value and you name your trust as the owner, your successor trustee would be able to borrow on the policy at your incapacity to help pay for your care. And if you suffer from a terminal illness, your successor could apply for a "Living Benefit" currently offered by many insurance companies. (Under this program, the "death benefit" is paid to you before you die - instead of to your beneficiary after you die - so the cash is available to help meet expenses while you are living.)

However, if your estate is large enough that it would have to pay estate taxes, you should probably consider having a Life Insurance trust (or other arrangement, like a Family Limited Partnership) to save estate taxes. We explain how they work in Part Nine.

Employer-Provided Insurance
These would include life insurance (including split dollar insurance), accident insurance and disability insurance your employer provides for you. Your living trust should be the beneficiary when you have the option. Your employee benefits or personnel department will have the appropriate forms and can help you complete them.

Sole Proprietorship
Business licenses and DBAs (doing business as) should be changed to show your living trust as the owner. An assignment is used to transfer business property to your trust.

Closely-Held Corporation
First check to make sure that transferring your interests to a living trust will not trigger an event covered by a buy-sell agreement. (If it does, you can request that the document be changed.) The appropriate corporate records will then need to be prepared to transfer title. Share certificates will also need to be re-registered in the name of your trust. To do this, a Stock Power (prepared by your attorney) and the certificates will need to be sent to the attorney or officer who handles the transfers.

Subchapter S Corporation
With a subchapter S corporation, both the earnings and any losses of the corporation are passed through to the owners personally. Earnings are taxed only once at the personal level and any losses can be deducted from ordinary income. (With a "C" corporation, earnings are taxed twice - once at the corporate level, and again at the personal level when the earnings are distributed. And, until the corporation is sold or liquidated, losses can only be deducted from corporate earnings.)

Transferring subchapter S corporation stock to your living trust does not cause any change or any problem while you are living. After you die, however, the stock can only stay in your living trust for up to two years - after that, it would lose its "S" status and become a "C" corporation.

But this rarely happens - because two years is usually plenty of time to distribute the stock to the beneficiaries so the "S" status can be retained. If you don't want your beneficiaries to receive the stock outright, the IRS also allows it to be transferred to other trusts that meet its qualifications to retain the "S" status. The IRS creatively calls one of these "qualified subchapter S trusts" (QSST).

Your attorney should plan for the distribution of subchapter S stock when he/she prepares your living trust document.

Limited Partnerships/Corporations/Limited Liability Companies
If you are involved in any real estate (or other) partnerships, corporations or limited liability companies, your interest should be assigned to your trust. This probably will not disturb the existing agreement or affect your partners in any way, but you should check the agreement or corporate by-laws just to be sure.

The general partner may already have a form to assign your interest to your trust. If not, your attorney can prepare one. The assignment should identify your interest that is being transferred, how the interest should be titled, and that the trustee accepts any liabilities as well as benefits.

Send the assignment to the general partner with a letter instructing him/her to make the transfer. Since other documents may need to be prepared to complete the transfer, you may want to give the general partner a limited power of attorney to sign the other documents for you. (The general partner may charge a fee to do this.)

General Partnership Interests
This transfer is handled in the same way as a limited partnership. However, your signature will probably need to be notarized, and the assignment should include a provision for the other partners to consent to it. The partnership agreement may also require you to send the assignment to the other partners or general partner to sign - as verification of their acceptance - and return the assignment to you.

If you are using a corporate trustee with your trust, they may not be able to serve as a general partner. A special trustee may have to be appointed instead.

Copyrights, Patents, And Royalties
"Intellectual properties" such as these can usually be transferred to your living trust with an assignment drafted by your attorney. (Make sure your attorney is familiar with these.)

Oil And Gas Interests
Transferring proven oil and gas interests - mineral leases, overriding royalty interests, production payments, and working and operating interests - can all be transferred to your living trust without losing the percentage cost depletion deduction (similar to depreciation). Your trust and/or beneficiaries can continue to claim the deduction after you die.

The process to put these interests into your trust will vary, depending on the state in which the property is located. You may want to have your attorney do these transfers for you. They can be tedious - the legal descriptions and depletion allowances must be exact, and you want to be sure everything is done properly.

Club Memberships
As long as the membership agreement does not prohibit it, a club membership can be assigned to your trust. Some membership agreements allow you to name a beneficiary - if yours does, it should be your living trust.

Foreign Assets
Foreign assets can be transferred to a living trust if revocable living trusts are recognized in that country. You or your attorney will need to contact an attorney in the country where the assets are located to find out if there are any specific advantages - or disadvantages - to putting these assets in your trust and the process that should be followed.

NOTE: This information is designed to provide a general overview with regard to the subject matter covered and is not state-specific. The authors, publisher and host are not providing legal, accounting or any other advice which purports to be specific to your situation. The contents of this website are believed to be completely reliable. Nevertheless, some material may be affected by changes in the laws or interpretations of such changes since the material was entered on the website. If legal advice or other expert guidance is required, the services of a competent professional in the field of law, accounting, insurance or investments should be sought.

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