Quick Reference Trust Funding Chart

When using a trust-based estate plan, it will only avoid probate court if your assets are transferred to your trust while living or upon your death by beneficiary designation. Both methods of trust funding have their benefits, and the decision largely depends on the type of asset and your overall estate planning goals. The following guide explains the key differences and helps you understand which approach might be best for various assets.

Change Ownership to Trust

1. Real Estate Real estate is often the largest asset individuals own, and transferring it into a trust can offer significant benefits. By placing real estate into a trust, you can avoid the probate process, ensuring a smoother and quicker transfer to your heirs. This method also allows for better management of the property if you become incapacitated.

2. Bank Accounts Bank accounts can be transferred into a trust to ensure that funds are accessible for your beneficiaries without the need for probate. While your bank may suggest using beneficiary designations or right-of-survivorship to avoid probate, each of those have limitations that a trust does not have. Transferring your accounts to your trust during your life ensures your trustee can access the funds in the event you are still alive, but not able to manage your own finances.

3. Investment Accounts Like bank accounts, investment accounts (excluding retirement accounts) should generally be transferred into a trust. This ensures that your investments are managed consistently with your overall estate plan and can be distributed to your beneficiaries efficiently.

4. Business Interests For those who own a business, transferring business interests into a trust can help preserve the business’s continuity after your death. It also allows for more control over how the business is managed and eventually passed down to your heirs.

5. Vehicles While not as common, vehicles can be placed into a trust, especially if they are valuable or have sentimental significance. Doing so can help avoid the need for probate and simplify the transfer process to your heirs. If you choose not to transfer vehicles to your trust, your heirs according to Texas law (which may be different than the beneficiaries in your trust), can have the DMV retitle the vehicles without having to probate your estate.

6. Personal Property (Jewelry, Art, etc.) Valuable personal property, such as jewelry, art, or other collectibles, should be placed into a trust to ensure they are distributed according to your wishes. This can also prevent disputes among heirs and avoid probate. We include a document that transfers all your personal belongings into your trust.

7. Safe Deposit Box If your safe deposit box contains valuable items, such as a cryptocurrency wallet, or important documents, it is advisable to transfer ownership into a trust. This ensures that your trustee has access to the box without needing a court order, which can be time-consuming and costly.

8. Collectibles (Coins, Stamps, etc.) Collectibles that hold significant value should be included in your trust to ensure they are properly managed and distributed. This not only helps avoid probate but also ensures that these items are handled by someone who understands their worth.

Make Trust the Beneficiary

1. Retirement Accounts (IRA, 401(k)) Retirement accounts like IRAs and 401(k)s should not be transferred into a trust while you are alive due to potential tax consequences. Instead, you can name the trust as the beneficiary of these accounts. This allows the assets to be distributed according to the trust’s terms upon your death while preserving the tax-deferred status of the accounts during your lifetime. Our trusts include a conduit provision to ensure the maximum stretch period can be used for distributions.

2. Life Insurance Policies Naming a trust as the beneficiary of your life insurance policies can help ensure that the proceeds are used according to your wishes. This can be particularly beneficial if you want to provide for minor children or other beneficiaries who might need assistance managing a large sum of money.

3. Annuities Similar to retirement accounts, annuities should generally not be transferred into a trust while you are alive. Instead, naming the trust as the beneficiary allows the proceeds to be managed and distributed according to your estate plan.

Conclusion

Understanding whether to change the ownership of an asset to a trust or to designate the trust as a beneficiary is important. However, doing so correctly is essential for ensuring that your estate plan functions smoothly and that your assets are distributed according to your wishes. By carefully considering the nature of each asset, you can optimize your estate plan and provide peace of mind for yourself and your loved ones.