Revocable trusts have certain advantages over irrevocable ones, such as avoiding probate. They also have specific disadvantages, such as reduced control. It’s all about deciding what is best for your particular needs.
If you opt to create a revocable trust, you need to understand how to place assets under its control – known as funding the trust.
There are three principal methods for doing this, and you may need to use a combination of them:
Make the trust the beneficiary
Some assets ask you to designate a beneficiary. They also allow you to add a backup beneficiary in case the first dies before they can receive. You can even name multiple beneficiaries if you prefer to split things between people.
Examples of things that have beneficiary designations include:
- 401(k) retirement accounts
- Life insurance policies
- Health savings accounts
- Medical savings accounts
To pass these assets to the trust when you die, you designate the trust as the primary beneficiary.
Make the trust the titleholder
You will be the titleholder of certain assets. For example, any of the following:
- Stocks and bonds
- Bank accounts
- Non-IRAs
- Non 401(k) retirement plans
To pass them to the trust, you make the trust the titleholder instead of you.
Make the trust the owner
Not all your possessions have a way to declare you own them. Examples include:
- A work of art
- Royalties for something you wrote
- Intellectual rights
- Some mineral rights
In this case, you can use the trust document to assign ownership of the asset to the trust.
Errors can be costly when trying to fund a trust, so, as with all estate planning, it is wise to have legal guidance.