A revocable trust — sometimes known as a “living trust” — can provide significant benefits. They include the ability to avoid probate of the assets the trust holds and facilitating management of your assets in the event you become incapacitated. To obtain these benefits, however, you must fund the trust — that is, transfer title of assets to the trust or designate the trust as the beneficiary of retirement accounts or insurance policies.

Inventory your assets

To the extent that a revocable trust isn’t funded — for example, if you acquire new assets but fail to transfer title to the trust or name it as the beneficiary — those assets may be subject to probate and will be beyond the trust’s control in the event you become incapacitated.

To avoid this result, periodically take inventory of your assets. This can better ensure that your trust is fully funded.

Assets to transfer

What should you transfer? Some typical examples include bank accounts, securities, real estate and business interests. Generally, you can transfer these assets with little difficulty, although real estate may require some additional footwork. Make sure to change the beneficiary designations for assets that are to be transferred to the trust. Typically, you’ll want to avoid transferring IRA and 401(k) plan or other retirement plan benefits to a revocable trust. Without careful consideration and proper planning, naming the trust as beneficiary can trigger unwanted tax consequences.

It’s often recommended that you transfer ownership of life insurance policies and annuities to a trust. But note that, absent certain exceptions, there are rules that will cause insurance policies and annuities transferred within three years of your death to be included in your taxable estate. Rather than transfer the ownership, you might simply change the beneficiary designations. The decision may hinge on whether estate tax is likely to be a factor.

Max out FDIC insurance coverage

Another important reason to fund your trust is the ability to maximize FDIC insurance coverage. Generally, individuals enjoy FDIC insurance protection on bank deposits up to $250,000.

But with a properly structured revocable trust account, it’s possible to increase that protection to as much as $250,000 per beneficiary. So, for example, if your revocable trust names five beneficiaries, a bank account in the trust’s name is eligible for FDIC insurance coverage up to $250,000 per beneficiary, or $1.25 million ($2.5 million for jointly owned accounts).

Note that FDIC insurance is provided on a per-institution basis, so coverage can be multiplied by opening similarly structured accounts at several different banks. FDIC rules regarding revocable trust accounts are complex, especially when a trust has more than five beneficiaries, so talk to us to maximize insurance coverage of your bank deposits.

Turn to us for guidance

Revocable trusts provide significant benefits. If you have questions regarding your revocable trust and what assets you should fund it with, contact us or visit our related service page for more information on our services. We’d be happy to help.

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