A revocable living trust (RLT) is often the best vehicle to preserve an estate planning client’s assets and avoid probate court. However, the process of getting all of the client’s assets safely into the trust (a process called funding) can be laborious. Leaving the process to the client or doing it yourself both have their pros and cons. Keep reading to find out whether you should handle the funding process and learn the best ways to fund your client’s RLT.  

Should Funding Be Mandatory or Optional?

You, the attorney, could adopt the practice that your office will always fund a client’s RLT. If you handle the funding process, make sure the client knows that this service comes at an extra expense—whether you decide to charge hourly, a flat fee for the entire funding process, or à la carte for each asset that is funded into the trust. The advantages of handling trust funding are as follows:

• You can ensure that the trust is funded properly and with minimal delay
• Handling the funding process can promote trust and loyalty with your client
• You can generate additional revenue 

However, funding a trust can be time-consuming, and it may strain your law practice’s staff and resources. If you would prefer that your clients handle the funding process themselves, make sure they understand that they have additional work to do to fund the trust and ensure that it functions as intended; it is best practice to have clients sign an acknowledgement that they understand this. Using the Wealth Docx^® software, you can equip clients with a detailed set of funding instructions that can also include an acknowledgment clause to make sure they understand how to complete each task properly. In addition, you may wish to review the funding instructions with your clients. You can also incorporate a reminder to fund in your closing letter or send a specific funding reminder letter. Alternatively, you could include a funding audit in your annual maintenance plans.

Even if clients will handle most of the funding, generally, an attorney should deal with any deeds that are created during the process due to the complex nature of real estate transfers.

Identifying Assets to Be Funded

Not all assets will be funded to the RLT, so it is important to identify which assets need to be funded in the trust and which do not. For example, bank accounts are generally funded to the RLT, but assets with beneficiary designations (such as retirement assets and life insurance) generally are not, though the RLT may be named as a beneficiary on the beneficiary designation form. 

Regardless of whether you as the attorney or your client will be responsible for funding, you must gather information about your client’s assets. To do so, you may wish to employ questionnaires or other information-gathering techniques. For example, in your first client meeting, you can introduce your team and assign homework to the client instructing the client to gather all of the relevant asset documentation. Introducing your team is especially important if your law practice designates a paralegal or other employee as the point person for the information-gathering and funding process. 

Everyone involved in the funding process can have access to a checklist that you create, that includes

• a list of all funding assets,
• who is responsible for funding each asset,
• the funding status, and 
• the completion date.

Documents that can help you identify the trust assets include tax returns, business formation documents, bank statements, and property title deeds. You can provide a closing summary to the client when the process is complete. 

How to Fund Each Asset

After identifying the assets that will go into the trust, their ownership needs to be transferred. This will happen differently for each asset type, as follows:

• Bank accounts may be transferred to a trust by the grantor, who will sign new forms at the bank; the bank will likely require a copy of the certificate of trust 
• Brokerage accounts can be transferred similarly, and generally require a copy of the certificate of trust
• Real estate may be transferred by deeds, which should be drafted by the attorney and recorded appropriately; clients should contact their homeowner’s insurance carrier to add the RLT as an additional insured and should contact their title insurance carrier to determine whether an endorsement is necessary to ensure continuity of coverage
• Business interests require review of the governing documents (e.g., operating agreement, bylaws, etc.) to ensure that there are no conflicting provisions or restrictions on transfer therein; if none, transfer to the trust may be accomplished via a special assignment or other process depending on the specific business interest involved 
• Certificates of deposit may be transferred to a trust, but caution is warranted because sometimes retitling is considered an early withdrawal subject to penalties; such certificates of deposit could also be retitled in the trust after they mature, although waiting risks the possibility that the client could pass away before the maturity date  
• Paper-issued US savings bonds can generally be reissued in the name of the RLT by filling out FS Form 1851 (Request to Reissue United States Savings Bonds to a Personal Trust) and following additional instructions as necessary; the process for electronically held US savings bonds may differ
• Safe deposit boxes can generally be transferred by filling out a new card with the name of the trust 
• Timeshare transfers are complicated and time-consuming, so they should be handled by the attorney, perhaps on an hourly basis

Whether to include vehicles (e.g., cars, boats, and aircraft) in funding an RLT is situation-specific. Typical cars (as opposed to collector’s cars) should generally not be included in a trust due to insurance and liability concerns. In many jurisdictions, a decedent’s vehicle can be transferred to an heir outside of probate; the heir need only obtain the owner’s death certificate and contact the state authority to transfer title of the vehicle.

Life Insurance and Retirement Accounts

Some assets, such as retirement accounts and life insurance policies, generally should not be transferred to a trust for tax reasons. Further, these assets will pass to heirs outside of the probate process according to their beneficiary designations. However, life insurance and retirement accounts should still properly align with the client’s estate plan. Choosing whether to name an RLT or a loved one as primary beneficiary should be done on a case-by-case basis, and SECURE Act provisions must be considered for retirement plan distributions.

Automate the Funding Process

Wealth Docx has everything you need to structure your client’s estate plan, including RLT agreements and pour-over wills, as well as ancillary documents such as durable powers of attorney, healthcare documents, and advance directives. In addition, comprehensive and asset-specific funding instructions, assignments of personal property and business interests, certificates of trust, trust ID cards, and quick reference pages can be used to support the trust funding process. To learn more about how Wealth Docx works, schedule a demo today.