Transcription
Hey, imagine you buy a high-tech, fireproof safe to protect your life savings. You bring it home, and you go down. You bolt it to the floor, and you set your 12-digit code. But then you leave your cash, and your jewelry, and your Rolex watch sitting on the nightstand. Right? That is exactly what most people do with their living trust. They build this safe, but they never put anything inside.
In fact, I ran into someone at my recent tax and asset protection workshop where I sat down with this daughter. Her father just passed, and he had a living trust. But get this, it was not funded properly. Listen, if your house, your bank accounts, and your business are not officially retitled in the name of your trust, then there are still probate assets. And I had to explain it to her because she was wondering, "How do I gain access to these assets? I'm the successor trustee." And I told her, I said, "You need to go back. You need to hire an attorney, and you have to go through the probate process." And she was shocked. She said, "Well, wait a minute. I thought that the reason why my father put a trust together so that we could avoid probate." In fact, she looked at me and she said, "You just taught a session in there about avoiding probate by using a living trust." I said, "That's true. But we also talked about the fact that the living trust doesn't help you unless it's funded."
Okay. Because if you don't fund it, that means when you, when you die, your family still goes to court. They still pay the lawyers, and they still wait 18 months. And the whole time, what is your trust doing? It's just sitting in a drawer, completely useless.
So why is this such an important topic right now? Because with the new tax rules for us, for estate planning, meaning the $15 million exemption that you can all pass on to your beneficiaries free of a federal estate tax. In my experience, people are getting lazy, right? They think, "Hey, the government's not going to take my money," so they don't care about the paperwork so much. And I've seen this quite a bit with quite a few people that have come to my tax and asset protection events. But here's the thing. You have to realize the court, they don't care about your taxes. What they care about is title to your assets. And if you don't have your assets titled in the trust, you're going to end up in probate.
So here's what I'm going to do today. I'm going to give you the ultimate 2026 trust funding checklist. And there are five steps to ensure that your trust will actually work when your family needs it most.
Now, here's what I want to do. I want to get these assets moved. So let's start talking about what they are. Okay. So the first asset that we have to concern ourselves with that is going to be your personal residence. So you've set up your living trust right here. Here's my living trust. Just call it "Light." Now, if your home remains in your name and it's not put into your living trust, then when you pass away, that's going to need to be probated. So here's what I want you to do. If you've set up a living trust, or you're considering setting one up, as soon as you set up your living trust, you need to get your property transferred over into the trust name. Now, we do this via a warranty deed, okay? And so what you're going to do is you're going to transfer it from your name. Let's say this person here is Toby. Toby's going to transfer it from Toby as an individual to Toby as trustee of the, let's call this the Mathis Family Living Trust, LT. That's essentially what you're going to do. You're going to record that deed. And when you record that deed, that property is no longer going to be held in your name. Now it's going to be held in the name of the trust, so that property will pass without probate. Your successor trustee will be able to handle this asset. All they need is a death certificate. And then they would provide a certain certification of trust. And then they can transfer the title if it's going to go to beneficiaries very simply with those two documents.
Now, in some states, retitling your house without an endorsement on a title policy. Because here's the thing, when you move it into your living trust, it may void your title policy or your insurance policy. So check with your carrier after you get it in. From a title policy standpoint, I'm not too concerned about that, because as long as you use a warranty deed and not a quitclaim deed, you're going to be covered. But the insurance is important. You need to name your trust as the named insured or additional insured. I just dealt with this with a client a few weeks ago, working with their carrier to get the trust listed on the policy.
All right, now the second item we have. So the first one is your house. Now, guess what the second item is going to be? Bank accounts. Right. So Toby has two accounts. He has an account, let's say with Wells Fargo, an account with B of A. And both of these are in his individual name. Now, you don't just go down to the bank and say, "Hey, I've got a trust. I need to retire my account." You actually have to take your trust with you, and most likely you're going to want to see a certification of trust. And what you're going to do then is you're going to actually change the accounts over into the trust name. Now, what does that mean? Well, it means that when you walk into Wells Fargo or Bank of America, it's not taking my account right now that has Toby listed as the account owner and swapping in Toby as trustee of the Mathis Family Trust. Now, they're going to tell you you need to open a new account. Now, don't let that deter you, because what is the cost of not doing this? If you don't open the new account, then the assets remain in your name, and these will go through probate. And we don't want them to go through probate. That's why we created a living trust. So in order to get the Wells Fargo, the B of A account, checking account inside of this document, you have to open up a new account.
Now, here's something that comes up a lot. People ask me, they'll say, "Well, then if I do that, how will my checks read? Will my checks look like this? Have this on the check, okay? Or will it just say Mathis Family Trust?" No, they won't. The checks will read any way you'd like. So, for example, my estate plan or my living trust. The checks do not have anything on them relating to my trust. It just has my name on it. My wife's name. So when you print out your checks, you can print them out any way you would like. The account is still held in the trust name, but your checks don't have to disclose the trust name on them.
Okay, so let's talk about number three. I've got to move this whiteboard over a little bit here. So the third item is going to be the business interests. So what does that mean? Well, a lot of times what will happen is that people will create a living trust, but they've also been working on asset protection. Maybe they've set up an LLC right here to hold their digital assets. I've cut a video on that. So this would be my Digital Asset LLC. And then maybe you have another LLC down here that holds multiple LLCs. Let's say we've got three that are holding your rental real estate, okay? Now, when these LLCs are set up, okay, this is another LLC right here. When these LLCs are created, typically the operating agreement is going to be drafted with the member as Toby. All right. So Toby is a member of this one, and Toby's the member of this LLC. Generally speaking, it's not good practice to name your living trust as the initial member of your LLC. Now, the reason why you don't do that is because when you're opening an account for the LLC, let's say the bank asks to see a copy of that operating agreement. The last thing you want to do is send them an operating agreement that shows you have a living trust, because if you do that, then they're going to ask you for a copy of your trust document. And so that just delays the process and complicates things. So what you, when you draft these, this is the way we do it here at Andersen. We put them together. We name you as the client as the member. But then the next critical step is that after the LLC is formed and the operating agreement's been signed, you need to now transfer your interest over to your living trust. So how do you do that? You do that via an assignment of interest, okay? So you assign your LLC. It's a one-page document. It is hereby assign 100% of my interest in Fuzzy Bird, LLC to the Mathis Family Trust. It's it. Boom. Done. Operating agreement still shows Toby, but technically, he no longer owns it because he's assigned his interest to the trust. So by doing that now, we've put both of our LLCs in the trust. And oh, by the way, one thing that comes up a lot here when I talk about this, people ask, "Well, what about these LLCs? Do I need to assign those?" You do not. Because when you assign this LLC right here, what you effectively did is you transferred these three smaller LLCs that are held by it into the trust. So all you have to transfer is what you own. Okay. That's all. You're moving in.
Now, the fourth one, okay, is what I'm going to call the transfer on death trap. Okay. So for cars or smaller accounts that use transfer on death or payable on death, let's put this number four. Let's do a different color here. Transfer on death. Okay. These, these types of assets, you don't necessarily need to put them into the trust. In fact, I've cut a video on the five things you don't need to put in your trust. But what you can do is if they offer that payable on death or transfer on death, you can name your trust as the beneficiary. So it bypasses probate.
Now, you might be thinking to yourself right now, as I mentioned, that, well, if that's the case, why did you tell me to transfer my Wells Fargo or my Bank of America account into my living trust today? You see, when you think about a living trust, I want you to know that there are three friction points in a trust or three aspects we have to look at. One is your incapacity, the second is your passing, and the third is your spouse's passing. Right. So those are three important aspects of using a living trust. When you have a transfer on death, that only works if you die. But if you haven't died and you're just incapacitated, then nothing transfers. So your bank account, it's really important that you have those in your trust. So your successor trustee can then have access to those assets and use them for your benefit. But if you left them outside, they're going to have to go to court and get appointed as a guardian in order to gain access to those accounts. So that's why I told you to transfer those in. This question comes up a lot. People will say to me, "Well, Clint, I could use a POD on my personal bank account." Yes, you can, but for the reasons I just stated, you do not want to do that.
Now, the fifth thing is that I want to focus on here. Let me erase some of this that you should look at when it comes to your living trust. Number five is going to be beneficiary designations. All right. I'm going to write slow because some people criticize me in the comments that they can't read my writing. And I could see that. I do tend to write fast. It's got a fat pen here. But anyways. All right. This is the most complex part. See, for life insurance, name the trust as the beneficiary. Okay? Or some people do, you name your spouse first and name the trust as the contingent beneficiary. For IRAs, 401(k)s, listen, you should consult with your CPA about naming a trust as a primary beneficiary. Because if you don't have your trust set up the right way, it can have major tax implications under the new 2026 rules. But for the most part, if you have the living trust built with conduit provisions in it, and that's a question you need to ask your preparer, "Did you put conduit provisions for retirement accounts into my trust?" If they said yes, well then you're clear. Then that's already been accounted for, and you can name your trust as the direct beneficiary. And there are some positive benefits of doing that, especially in those situations where you don't want the beneficiary to have access. Let's think about this. Say you have a child, two children, 18 and 16. You're killed in a car accident, and you have some retirement accounts with $700,000 in them. Do you really want the 18-year-old and the 16-year-old to become beneficiaries of a retirement accounts where they get $350,000 each? I think not. All right. So by using the trust as the beneficiary, we can prolong the distribution to them, to hold on to those funds, to allow them to mature the child, to mature over time before they gain access to these assets.
Listen, when it comes to trust funding, this is the critical piece that unfortunately gets missed. A lot of times people think, "Hey, I've set up my trust." They put it on the shelf and they think, "Oh wow, I'm good to go." But the reality is, if you don't fund it, that trust is a useless document. I hope you got a lot out of this video. If you find it to be helpful, be sure to hit the like button. And if you know somebody who set up a living trust, share it out with them. In fact, we here at Andersen, we create living trusts for clients, individuals in all 50 states. And if it's something that, you know, that's been on your radar screen, that one of those things that you've been putting off, and you realized, "Hey, now's the time to do it." Go into the show notes. I have a link there where you can set up a strategy session with someone at my office, and we can walk you through the appropriate estate plan for your individual situation and help you out to make sure you can get your assets protected. With that, take care, and I wish you the very best with your estate planning.