Part 3: Property to Be Put in Trust
Now you're getting to the heart of the program. In this part, you must list each item of property you want to transfer to your living trust. It will take some thought to decide what property to include and how to list it in the trust document. (Later in the program, you will name beneficiaries to receive each item of trust property at your death.)
This is a crucial step: Any property you don't list will not go into your living trust and will not pass under the terms of the trust. It may have to go through probate instead.
Adding property to the trust later. If you mistakenly leave something out or acquire more valuable property after you create your trust, you can add it to your living trust later. Living With Your Living Trust explains how.
Listing property in the trust document is not enough. If an item has a title (ownership) document, such as a deed or title slip, you must change the title document to show that you, as trustee, are the legal owner of the property. If you don't, the trust won't work. You should transfer ownership as soon as possible after you print out and sign your Declaration of Trust. Instructions are in Transferring Property to the Trust.
Decide What Property to Hold in Trust
What items should you hold in trust to avoid probate fees? Think about including:
- houses and other real estate
- jewelry, antiques, furs and valuable furniture
- stock in a closely held corporation
- stock, bond and other security accounts held by brokerages
- small business interests
- patents and copyrights
- precious metals
- valuable works of art, and
- valuable collections of stamps, coins or other objects.
You don't need to put everything you own into a living trust to save money on probate. For some assets, you may decide to use other probate-avoidance devices instead of a living trust. (See About Living Trusts.)
When you list your property in the program, you can group items, if you're leaving them all to one beneficiary. For example, if you want to leave all your books to your best friend, there's no need to describe each one individually -- unless your collection includes some particularly valuable or important books that you want to make extra sure get to the beneficiary.
Real Estate
The most valuable thing most people own is real estate: their house, condominium or land. Many people create a living trust just to make sure a house doesn't go through probate. You can probably save your family substantial probate costs by transferring your real estate through a living trust.
If you own the property with someone else, however, you may not want to transfer your real estate to an individual living trust. (See Co-Owned Property, below.)
Co-op apartments. If you own shares in a co-op corporation that owns your apartment, you'll have to hold your shares in trust. Some corporations are reluctant to let a trustee own shares; check the co-op corporation's rules to see if the transfer is allowed.
Small Business Interests
The delay, expense and court intrusion of probate can be especially detrimental to an ongoing small business. Using your living trust to transfer business interests to beneficiaries quickly after your death is almost essential if you want the beneficiaries to be able to keep the business running.
If you want to control the long-term management of your business, however, a revocable living trust is not the right vehicle. See an estate planning lawyer to draft a different kind of trust, with provisions tailored to your situation.
Different kinds of business organizations present different issues when you want to hold your interest in trust:
Sole proprietorships. If you operate your business as a sole proprietorship, with all business assets held in your own name, you can simply transfer your business property to yourself as trustee. You should also transfer the business's name itself; that transfers the customer goodwill associated with the name.
Partnership interests. If you operate your business as a partnership with other people, you can probably transfer your partnership share to yourself as trustee. If there is a partnership certificate, it must be changed.
Some partnership agreements require the people who inherit a deceased partner's share of the business to offer that share to the other partners before taking it. But that happens after death, so it shouldn't affect your ability to transfer the property through a living trust.
It's not common, but a partnership agreement may limit or forbid holding your interest in trust. If yours does, you and your partners may want to see a lawyer before you make any changes.
Solely owned corporations. If you own all the stock of a corporation, you should have no difficulty transferring it to yourself as trustee.
Closely held corporations. A closely held corporation is a corporation that doesn't sell shares to the public. All its shares are owned by a few people who are usually actively involved in running the business. Normally, you can use a living trust to transfer shares in a closely held corporation by listing the stock in the trust document and then having the stock certificates reissued in your name as trustee.
You'll want to check the corporation's bylaws and articles of incorporation to be sure that you will still have voting rights in your capacity as trustee of the living trust; usually, this is not a problem. If it is, you and the other shareholders should be able to amend the corporation's bylaws to allow it.
There may, however, be restrictions that affect the transfer of shares. Check the corporation's bylaws and articles of incorporation, as well as any separate shareholders' agreements. One fairly common rule is that surviving shareholders (or the corporation) have the right to buy the shares of a deceased shareholder. In that case, you can still use a living trust to transfer the shares, but the people who inherit them may have to sell them.
Limited liability companies. If your small business is an LLC, you'll need the consent of a majority or all of the other owners (check your operating agreement) before you can transfer your interest to yourself as trustee. That shouldn't be a problem; they'll just want to know that you, as trustee of your own trust, will have authority to vote on LLC decisions. Another way to address this concern would be to transfer your economic interest in the LLC, but not your right to vote.
Bank Accounts
It's not difficult to transfer bank accounts to your living trust. But you may well decide that you don't need to. That's because you can directly designate a beneficiary for the funds in a bank account. If you do, you don't need to transfer those accounts to a living trust just to avoid probate. Their contents won't go through probate in the first place.
This option can be especially useful for personal checking accounts, which you may not want to transfer to your living trust -- it can be difficult to cash checks that say the account is owned by a revocable living trust.
A living trust, however, offers one advantage that most pay-on-death arrangements do not: You can name an alternate beneficiary to receive the account if your first choice isn't alive at the time of your death. Pay-on-death accounts are discussed in About Living Trusts.
Vehicles and Property That Is Often Sold
Some kinds of property are cumbersome to keep in a living trust. It's not a legal problem, just a practical one. Two common examples are:
- Cars or other vehicles you use. Having registration and insurance in your name as trustee could be confusing, and some insurance companies might balk. If you have valuable antique autos or a mobile home that is permanently attached to land and considered real estate under your state's law, however, you may want to go ahead and hold them in trust. You should be able to find an insurance company that will cooperate.
- Property you buy or sell frequently. If you don't expect to own the property at your death, there's no compelling reason to hold it in trust. (Remember, the probate process you want to avoid doesn't happen until after your death.) On the other hand, if you're buying property, it's no more trouble to acquire it in your name as trustee.
Life Insurance
If you own a life insurance policy at your death, the insurance company will give the proceeds to the named beneficiary, without probate. (The proceeds are, however, considered part of your estate for federal estate tax purposes.)
If you have named a minor or a young adult as the beneficiary, you may want to name your living trust instead. Then, in the trust document, you name the child as beneficiary of any insurance proceeds paid to the trust and arrange for an adult to manage the policy proceeds if the beneficiary is still young when you die. If you don't arrange for management of the money, and the beneficiary is still a minor (under 18) when you die, a court will have to appoint a financial guardian after your death. (Young beneficiaries are discussed in Part 6: Property Management for Young Beneficiaries.)
Passing the proceeds of a life insurance policy through your living trust is a bit more complicated than leaving other property this way. You must take two steps:
- Name the living trust as the beneficiary of your life insurance policy. (Your insurance agent will have a form that lets you change the beneficiary of the policy.)
- When you list property items in the living trust document, list the proceeds of the policy, not the policy itself. (See How to Describe Trust Property, below.)
Securities
If you buy and sell stocks regularly, you may not want to go to the trouble of acquiring and selling them using your authority as trustee of the trust.
Fortunately, there's an easier way to do it: Hold your stocks in a brokerage account that is owned in your name as trustee. All securities in the account are then held in trust, which means that you can use your living trust to leave all the contents of the account to a specific beneficiary. If you want to leave stock to different beneficiaries, you can either establish more than one brokerage account or leave one account to more than one beneficiary to own together.
Stock in closely held corporations. See Small Business Interests, above.
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Cash
It's common for people to want to leave cash gifts to beneficiaries -- for example, to leave $5,000 to a relative, friend or charity. Don't, however, just type in "$5,000 cash" when you list the property you want to transfer to the living trust. There's no way to hold cash in trust unless its source is identified.
You can, however, easily accomplish your goal by transferring ownership of a cash account -- a savings or money market account, for example -- to yourself as trustee of your trust. You can then name a beneficiary to receive the contents of the account. So if you want to leave $5,000 to cousin Fred, all you have to do is put the money in a bank or money market account, transfer it to your living trust and name Fred, in the trust document, as the beneficiary of the account.
If you don't want to set up a separate account to leave a modest amount of cash to a beneficiary, think about buying a savings bond and leaving it to the beneficiary or leaving one larger account to several beneficiaries.
EXAMPLE: Michael would like to leave some modest cash gifts to his two grown nephews, Warren and Brian, whom he's always been fond of. He puts $5,000 into a money market account and then transfers the account into his living trust. In his trust document, he names Warren and Brian as beneficiaries of the account. After Michael's death, the two nephews will inherit the account together, and each will be entitled to half of the funds.
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Co-Owned Property
If you co-own property with someone, you can hold your share of the property in trust. But whether or not you will want to depends on how you hold title to the property.
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If you do decide to transfer just your interest in co-owned property to your living trust, you don't need to specify that your share is one half or some other fraction. For example, if you and your sister own a house together, you need only list "the house at 7989 Lafayette Court, Boston, MA." Your trust document will simply state that you have transferred all your interest in that property to the trust.
If you are married and want to transfer only your share of property you own together with your spouse, see Creating a Shared Trust, in Part 3: Property to Be Put in Trust.
Property Held in Joint Tenancy
Property owned in joint tenancy does not go through probate until the last surviving owner dies. When one co-owner (joint tenant) dies, his or her share goes directly to the surviving co-owners, without probate. So if avoiding probate is your only concern, you don't need to transfer joint tenancy property to your living trust. A living trust does, however, offer more flexibility than joint tenancy.
Beneficiaries. If you transfer your share of joint tenancy property to a living trust, the joint tenancy is destroyed. You can leave your share of the property to anyone you choose -- it won't automatically go to the surviving co-owners.
Simultaneous death. Joint tenancy doesn't avoid probate if the joint owners die simultaneously. If that happens, each co-owner's interest in the property is passed to the beneficiaries named in the residuary clauses of their wills. If there's no will, the property passes to the closest relatives, under state law.
If you hold the property in your living trust, you can name an alternate beneficiary to receive your share of the property. You're assured that probate will be avoided even in the (statistically very unlikely) event of simultaneous death.
Property Held in Tenancy by the Entirety
Tenancy by the entirety is, basically, a kind of joint tenancy that's only for married couples (and for same-sex couples in states where that is available). It is allowed in the states listed in About Living Trusts.
You cannot hold your half interest in tenancy by the entirety property in an individual living trust. Neither owner can transfer his or her half of the property alone, either while alive or by will or trust. (This is different from joint tenancy; a joint tenant is free to transfer his or her share to someone else during his or her life.)
Community Property
Community property is another form of ownership that's only for married people (or registered domestic partners). In the states listed below, if you and your spouse together own community property, you should probably create a shared living trust.
| Alaska* | Idaho | New Mexico | Wisconsin |
| Arizona | Louisiana | Texas | |
| California | Nevada | Washington |
* If spouses sign a community property agreement.
Retirement Plans
Individual retirement accounts cannot be held in trust. Instead, avoid probate by naming a beneficiary to inherit whatever's left in your retirement account at your death. The plan administrator or account holder can provide forms on which to designate your beneficiary.
You can name a living trust as a beneficiary, but there's rarely a reason to. Under current IRS rules, money left to a trust must be distributed based on the life expectancy of the trust beneficiary.
Resource. IRAs, 401(k)s & Other Retirement Plans: Taking Your Money Out, by Twila Slesnick and John C. Suttle (Nolo), explains the options of those who inherit money in a retirement account.
Other Valuable Property
Other valuable items -- everything from jewelry and antiques to boats and airplanes -- can also be placed in trust.
How to Describe Trust Property
When Nolo's Online Legal Forms asks you to list the property you want to hold in your trust, describe each item clearly enough so that the successor trustee can identify the property and transfer it to the right person. No magic legal words are required.
Think about whom the property will ultimately go to. If you're leaving everything to one person, or just a few, there's less need to go into great detail. But if there will be a number of trust beneficiaries and objects could be confused, be more specific about each one. When in doubt, err on the side of including more information.
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If the property you're describing is valuable -- expensive jewelry or artworks, for example -- describe it in detail, much as you would if you were listing it on an insurance policy.
Here are some sample descriptions:
Real estate
- "the house at 321 Glen St., Omaha, NE"
- "the house at 4444 Casey Road, Fandon, Illinois, and the 20-acre parcel on which it is located"
Usually, the street address is enough. It's not necessary to use the "legal description" found on the deed, which gives a subdivision plat number or a metes-and-bounds description. But if the property has no street address -- for example, if it is undeveloped land out in the country -- you will need to carefully copy the full legal description, word for word, from the deed.
If you own a house and several adjacent lots, it's a good idea to indicate that you are transferring the entire parcel to your living trust by describing the land as well as the house.
If you own the property with someone else and are transferring only your share, you don't need to specify the share you own. Just describe the property. The trust document will show that you are transferring all your interest in the property, whatever share that is, to the living trust.
Bank accounts
- "Savings Account No. 9384-387, Arlington Bank, Arlington, MN"
- "Money Market Account 47-223 at Charles Schwab & Co., Inc., San Francisco, CA"
Household items
- "all the furniture normally kept in the house at 44123 Derby Ave., Ross, KY"
- "the antique brass bed in the master bedroom in the house at 33 Walker Ave., Fort Lee, New Jersey"
- "all furniture and household items normally kept in the house at 869 Hopkins St., Great Falls, Montana"
Sole proprietorship business property
- "Mulligan's Fish Market"
- "Fourth Street Records and CDs"
- "all accounts receivable of the business known as Garcia's Restaurant, 988 17th St., Atlanta, GA"
- "all food preparation and storage equipment, including refrigerator, freezer, hand mixers and slicer used at Garcia's Restaurant, 988 17th St., Atlanta, GA"
As explained in Decide What Property to Hold in Trust, above, you should both list the name of the business and separately list items of business property.
Partnership interest
- "Don and Dan's Bait Shop Partnership owned by the grantor before being held in this living trust"
Because a partnership is a legal entity that can own property, you don't need to list items of property owned by the partnership.
Shares in a closely held corporation
- "The stock of ABC Hardware, Inc."
Shares in a solely owned corporation
- "all shares in the XYZ Corporation"
- "all stock in Fern's Olde Antique Shoppe, Inc., 23 Turnbridge Court, Danbury, Connecticut"
Securities
- "all securities in account No. 3999-34-33 at Smith Brokerage, 33 Lowell Place, New York, NY"
- "200 shares of General Industries, Inc. stock"
- "Good Investment Co. mutual fund account No. 888-09-09"
Life insurance proceeds
- "the proceeds of Acme Co. Life Insurance Policy #9992A"
Miscellaneous items
- "Macintosh laptop computer (serial number 129311)"
- "the medical textbooks in the office at 1702 Parker Towers, San Francisco, CA"
- "the stamp collection usually kept at 321 Glen St., Omaha, NE"
- "the collection of European stamps, including [describe particularly valuable stamps], usually kept at 440 Loma Prieta Blvd., #450, San Jose, CA"
- "the Martin D-35 acoustic guitar, serial number 477597"
- "the signed 1960 Ernie Banks baseball card kept in safe deposit box 234, First National Bank of Augusta, Augusta, IL"
- "the Baldwin upright piano kept at 985 Dawson Court, South Brenly, Massachusetts"
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