Moving Assets Into a Revocable Living Trust

To prepare for the idea that someday I may no longer be alive, but also as a matter of general organization, I have created a revocable living trust. The primary benefit of this type of trust is to avoid a hassle for those who may be dealing with my estate after I die. No, I don’t have a large piece of property somewhere in the south of France. My estate is just my assets — bank accounts, investments, business interests — as modest as they are. Without a trust, the process of probate could be expensive and disorderly, but with a trust, probate can be avoided altogether.

I met with an estate attorney last month, and we discussed the terms of the trust. Yesterday, the documents were complete, and I visited her office to sign the documents, including a Last Will and Testament, in front of witnesses. The general consensus is that at the age of thirty-six, I’m a somewhat ahead of the curve. People generally don’t begin to consider these things until later in life.

But I’ve been writing about personal finances for ten years; it’s time I completed some of the more fringe tasks of managing my own money.

A revocable living trust doesn’t necessarily provide any protection for your assets. Unlike an irrevocable trust, the owner (trustee) still retains control of the assets. Thus, assets in a trust still reachable by a court and they’re still counted in your total net worth when government programs determine whether you qualify for benefits. The trust is a legal document that defines what happens to your assets in a variety of situations, but is much more flexible than a will.

The benefits of a trust apply only to those assets that are placed within a trust. And that means re-titling or changing your accounts so the trust is the owner. This is a process that can be straightforward and easily completed or it can take some time, require specialized witnesses to signatures, or deal potentially with customer service representatives unfamiliar with the process.

Moving bank accounts into a trust

My first order of business is to consolidate my variety of bank accounts. At the height, I owned several dozen bank accounts. That’s not normal. I had so many open bank accounts because I’ve used my own money to test and review bank accounts for Consumerism Commentary readers, like this review of the American Express savings account. This has left me with small amounts of money in bank accounts all over the country.

I’ve been slowly closing these accounts over the past year, but I want to ensure there’s nothing left that’s not in just a few accounts. For now, those accounts are going to be Capital One 360 (formerly ING Direct), Wells Fargo (where I recently received a new debit card declaring me a “customer since 1989”), and Chase Bank (a branch opened up a few years ago within walking distance).

Capital One 360 makes transferring accounts into a trust simple. It requires a one-page form which can be scanned and e-mailed, faxed, or sent via standard mail. Other banks may have a more involved process. I’ll be visiting my Wells Fargo and Chase branches to determine what is necessary to move assets into the trust. Sometimes, banks need to see the legal document, but the attorney who draws up the trust should be able to create pages that include what the bank needs to see without sharing personal details, like how you want your assets to be distributed. That information isn’t necessary for the bank’s process.

Moving investment accounts into a trust

My primary brokerage account is held at Vanguard. I’ve closed almost all of my other investment accounts, but I still have some shares of my former employer held with E*TRADE. To move assets into a trust at Vanguard, the company requires a two-step process. First, I must open a new account at Vanguard under the name of the trust. I will receive a new account number. Then, I simply transfer all assets from my personal account to the account within the trust.

One of the forms requires a signature guarantee. This isn’t as easy to find as a notary public. This requires me to sign the document in front of someone who has a special certification, and this is a service available in not many places other than investment banks. Luckily, I found a local bank branch that does offer signature guarantees for its customers, if the particular employee who has the authority happens to be in the branch on any particular day. I’ve done this once before for a Vanguard form; I will need to do it again to move my stock and bond funds into my revocable living trust.

Moving retirement accounts into a trust

I have IRAs at Vanguard, Fidelity, and TIAA-Cref. I’ve avoiding moving these accounts from one company to another. My preference would be to consolidate them at Vanguard, and this is something I might attempt to do some day. The IRAs consist of Roth IRAs and traditional IRAs. Some are rollovers from 401(k) accounts with former employers. I have an SEP IRA from when I considered myself self-employed. I have an Individual 401(k) from when I was saving for retirement with income from my business.

You can’t put retirement accounts into a trust. With retirement accounts, however, you can name beneficiaries, and while it’s possible to name the trust as a beneficiary, one reason prevents me from doing this with my IRAs. When a trust is named as a beneficiary to an IRA, the trust must begin making withdrawals from the IRA account when the funds come into the trust. This could create a tax problem for the trust’s eventual beneficiaries. In order to avoid this, I must name individual beneficiaries for the retirement accounts. This allows the beneficiaries to roll over the IRA they receive from the estate into their own IRA, avoiding any required distributions, additional unexpected income, and the tax consequences of that income.

Moving a house into a trust

My primary residence is an apartment that I rent. If I owned a house, or any properties as investment, I would be going through the process of changing the ownership. More precisely, I’d most likely be allowing the attorney to handle those transfers. Since my trust is established before I’d be purchasing property, I may be able to buy a house as the trustee immediately, rather than purchasing the house as an individual and changing the title and transferring the deed later.

Moving a house into a trust doesn’t seem to be a difficult process, but it may be worthwhile to allow an estate attorney handle the paperwork.

Moving insurance into a trust

When you name a beneficiary of an life insurance policy, on the event of your death, the beneficiary will receive the proceeds of the policy and will avoid probate. But if the beneficiary is a minor, you may wish to name the trust as the beneficiary. Your trust can have language that allows a new trust to be established for any beneficiaries under an age you may specify — twenty-one and twenty-five are popular choices. This newly formed trust, coming into existence when you die, can set specific rules for how the life insurance proceeds (or any other assets inherited by the minor) can be used.

I do not have a life insurance policy. I’m currently the only individual being supported by my income, so life insurance is not a concern for me at the moment. That might change in the future. In fact, there may be many changes ahead. If I have children or get married, I’d be changing much of the terms of my revocable living trust. This type of trust gives me the flexibility to amend or restate the trust at any time.

While a revocable living trust can help with estate planning, its benefit is organizational. It can’t help you shelter all your assets from the estate tax. It can’t hide your wealth from creditors or the government. But it can give you an infinite amount of flexibility. You can be very specific about who receives the benefits of your estate and under what circumstances. Your trust can establish other trusts, exclude specific assets from your otherwise comprehensive plan (like a work of art someone other than your regular beneficiaries might appreciate). It can dictate your charitable desires with more flexibility than just a Last Will and Testament. And, in combination with other documents, can prepare your assets for circumstances other than your death.

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