How To Create A Revocable Living Trust In California

Cash Accounts

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Cash accounts include checking, savings, money markets, and CDs. These can all be funded into a revocable living trust, but be careful with CDs. Your bank might consider the retitling of a CD into a revocable living trust as an early withdrawal of the funds, incurring penalties. You'll have to wait until the CD matures before retitling it in this case.

Non-Retirement Investment and Brokerage Accounts

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Non-retirement investment and brokerage accounts include assets held in an account in your name, as well as in joint names with others or as tenants in common. They do not include accounts held in qualified plans such as a 401(k), 403(b), IRA, or qualified annuities.

A change of title will result in negative income tax consequences with these types of accounts. They require a change of beneficiary into the name of the trust rather than a change of title. They would remain outside your trust during your lifetime, then be paid to your trust at your death.

Stocks and Bonds Held in Certificate Form

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The original certificate must be returned to the stock transfer agent in exchange for a new certificate if you're going to fund it into your trust. This requires obtaining a "Medallion Signature Guarantee" on the stock transfer form and mailing the original certificates via registered mail. You must insure the shares for 2% of their current fair market value.

Consider depositing your certificates into a brokerage account that's titled in the name of your revocable living trust rather than go through all this.

Tangible Personal Property

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Tangible personal property includes personal effects such as jewelry, clothing, books, personal papers, personal computers, and household goods such as furniture and furnishings, antiques, collectibles, or artwork. It can include motor vehicles, boats, airplanes, firearms, pets, horses, cattle, and tools.

Consult with an attorney about the possibility of creating a pour-over will to have your executor transfer your vehicle and other tangible personal property into your trust at the time of your death. This would still require probate, but the probate process should be a much simpler affair if it involves just a few assets moving into your trust, and the alternative could be more of a headache.

For example, a motor vehicle titled in an individual's name can't be transferred without probate in some states, so you could run into a problem here. Additionally, it could act as something of a red flag for litigation-hungry individuals should your vehicle be involved in an auto accident. Having your auto title in the name of a living trust signals untold wealth that could potentially be recovered should the other party file a lawsuit, even if that's far from the actual case.

Business Interests

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Business interests include shares of stock in a closely held corporation, general and limited partnership interests, and membership interests in limited liability companies.

Partnership ownership certificates must usually name your trust. As for closely-held corporations, you can generally just retitle the stock in your trust's name. Limited liability companies can require the consent of some or all of the other owners.

Check any shareholders' agreements, partnership agreements, or operating agreements for restrictions on transfers, as well as for specific procedures that must be followed to retitle your shares or interests into the name of your revocable living trust.

Life Insurance

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Changing the ownership of your life insurance policy to your revocable living trust gives your successor trustee the legal authority to deal with the policy, including borrowing against its cash value to pay for your care if you should become mentally incapacitated.

But be careful in states that offer creditor protection for the cash value of life insurance because some states only offer protection for policies owned by "individual" residents of the state. The cash value would become unprotected because the trust isn't an individual.

An alternative, in this case, would be to give power of attorney to your successor trustee instead so they can manage your life insurance if need be.

Oil, Gas and Mineral Rights

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Retitling your interest in gas, oil, or mineral rights into your revocable living trust will generally require either an assignment or a new deed. It depends on the type of ownership interest that you have.

Real Estate

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Transfers of real estate into a revocable living trust require recording a new deed in the name of the trust in the locality where the real estate is located.

A mortgage or other loan against the property shouldn't cause a problem because mortgages "follow" the property. For example, federal law provides that if a beneficiary inherits a home with a mortgage against it, the lender cannot call the loan due fully and immediately just because the original account holder is no longer living. The beneficiary inherits the mortgage as well.

Your trust would simply take over the mortgage payments if you transfer an encumbered property into it, but it's always advisable to check with your lender so you're sure of any additional steps you might have to take.