Trust Law/Level III · Family trusts/3.1 The living trust/Lesson 2
Funding a living trust: deeds, accounts and titles
How assets are moved into a living trust, and which ones usually stay out.
Education, not legal advice. Trust law changes from country to country and state to state, and the right structure depends on your situation. Anything you sign should be drafted or reviewed by a qualified lawyer where you live.
The lean path
The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.
- Retitle bank and brokerage accounts on each institution’s free forms, or name the trust as payable-on-death beneficiary; FDIC covers trust and POD deposits at $250,000 per beneficiary, capped at $1,250,000 per owner per bank. Catch: that cap counts all trust accounts at one bank together.
- Deed the home to yourself as trustee and record it yourself; the Garn-St Germain Act (12 U.S.C. §1701j-3(d)(8)) bars the lender from calling the loan for that transfer. Catch: you must remain a beneficiary and occupant, and the deed must meet county recording rules.
- In California, deeding a home into a revocable trust is not a change in ownership for property-tax reassessment (Revenue and Taxation Code §62(d)). Catch: the exclusion holds only while the trust is revocable or the transferor remains the present beneficiary.
- Leave IRAs and 401(k)s in your own name and name beneficiaries on the plan’s free form; retitling can be treated as a taxable withdrawal, and 401(k) assignment is barred (IRC §401(a)(13)). Catch: designations override the trust, so review them after marriage, divorce or a birth.
- Out-of-state land deeded to the trust avoids ancillary probate there; Minnesota even lets a transfer-on-death deed name the trustee of a revocable trust (Statutes §507.071 subd. 9). Catch: each deed must follow the local state’s form and be recorded before death.
MaterialsYour current deed for any real estate you ownStatements from all bank and brokerage accountsA list of all business interests or operating agreements you hold
Wonder
- Why does the mortgage lender care if I put my house in a trust?
- What happens to my 401(k) if I try to put it in the trust?
- How do I handle property I own in another state?
Explore
- A revocable living trust avoids probate only for assets actually transferred into it. If you sign the trust but leave your house or car in your individual name, those items still pass through probate upon death. The settlor must actively re-register every asset in the trust’s name during their lifetime. This process is called ‘funding’ the trust. Without this step, the legal document remains an empty shell that does not protect your family from court proceedings.
- For real estate, the owner usually signs a new deed transferring the property to the trustee of the trust and records it in the county land records. Under the US Garn-St Germain Act of 1982 (12 U.S.C. §1701j-3(d)(8)), a lender may not use a due-on-sale clause to call a home loan due because of a transfer into a living trust in which the borrower is and remains a beneficiary; this covers homes with fewer than five dwelling units. A federal regulation (12 CFR §191.5) adds that the borrower remains the occupant and may be asked to give the lender a way to learn of later transfers.
- Bank and brokerage accounts are usually retitled using the institution’s own forms, for example from ‘John Smith’ to ‘John Smith, Trustee of the John Smith Living Trust’. Retirement accounts are different. An IRA or 401(k) is held in one person’s name and is generally not retitled to a trust: changing the owner can be treated as withdrawing the money, which may make the balance taxable, and federal law generally bars assigning 401(k) benefits (Internal Revenue Code §401(a)(13)). Instead, the owner names beneficiaries on the account’s own form, and the trust can be one of them.
- Tangible personal property, such as jewelry, art, or family heirlooms, is often assigned via a simple written statement listing the items and declaring them part of the trust. This avoids the need for individual deeds for every object. For business interests, you must check your operating agreements or partnership contracts. Some businesses require partner consent before transferring ownership stakes to an entity like a trust. Ignoring these contractual restrictions can violate your agreement with co-owners.
- Real estate in another state is normally probated there, in a separate ‘ancillary’ probate, if it is still in your own name at death. Deeding it to your living trust, with a deed that meets the rules of the state where the land is and is recorded there, generally avoids that second proceeding. This keeps that property out of a second state’s court, which can save time and the cost of hiring lawyers in more than one state. Recording rules, transfer taxes and fees differ by state and county, so the deed must follow local requirements.
- A practical checklist: 1) sign and record new deeds for real estate, including out-of-state property, and ask the title insurer whether coverage continues after the transfer; 2) retitle bank and brokerage accounts; 3) assign tangible personal property by a written assignment or schedule; 4) check business agreements for transfer limits or consent requirements; 5) tell the mortgage lender about a transfer of a mortgaged home; and 6) review beneficiary designations on IRAs, 401(k)s and life insurance instead of retitling retirement accounts. A list of every asset and how it is held shows what is still outside the trust.
Key facts
- Under the Garn-St Germain Act of 1982 (12 U.S.C. §1701j-3(d)(8)), a lender may not call a home loan due because the home is transferred into a living trust in which the borrower is and remains a beneficiary.
- IRAs and 401(k)s are generally not retitled into a living trust; a beneficiary designation, which can name the trust, is used instead.
- Assets left in the settlor’s individual name after death still pass through probate, even if a revocable trust exists.
- Deeding out-of-state real estate to a living trust generally avoids ancillary probate in the state where the land is.
- Business interests may require partner consent before being transferred to a trust, depending on the operating agreement.
- Tangible personal property is typically added to a trust via an assignment statement rather than individual deeds.
Exercise nine, six, three, one
9CollectList up to 9 assets you own (most people have fewer), such as real estate, accounts, business interests or valuables, and note whose name each is held in now.
6ClusterSort the 9 assets into 6 categories: Real Estate, Bank/Brokerage, Retirement/Insurance, Business Interests, Tangible Personal Property, and Out-of-State Property.
3DistillReduce the 6 categories to 3 groups based on how they are legally transferred: Deeds/Recording, Account Forms/Beneficiary Designations, and Assignment Statements/Contract Review.
1CrystallizeWrite 1 sentence naming which of your assets are still outside the trust, if you have one, and what document or form would move them in or name a beneficiary.
Fact check
Dates, figures and claims checked against the published sources listed below.