A living trust only protects the assets you actually transfer into it. If you create a trust but never change the titles on your home, bank accounts, or investments, those assets may still go through probate after you pass away. Funding your trust is the step that makes it work, and skipping it is one of the most common estate planning mistakes New Jersey families make.
At The Matus Law Group, New Jersey estate planning attorney Christine Matus has helped families throughout Ocean County and the surrounding region for more than 30 years. Our living trust attorneys guide clients through every stage of the trust funding process, from retitling real estate to updating beneficiary designations.
This guide explains what trust funding means, which assets you can transfer, and how to handle real estate, financial accounts, and personal property. Need help funding your living trust in New Jersey? Call (732) 281-0060 to schedule a consultation and discuss the next steps for your estate plan.
What Does It Mean to Fund a Living Trust?
Funding a living trust means transferring ownership of your assets from your individual name into the name of the trust. Under New Jersey’s Uniform Trust Code, N.J.S.A. 3B:31-1 et seq., a trust is a legal arrangement where a trustee holds and manages property for the benefit of named beneficiaries. However, the trust can only manage assets that have been properly retitled or assigned to it.
Think of a trust as a container. The trust document sets the rules for how assets are managed and distributed, but the container is empty until you place assets inside it. A trust that is never funded provides no benefit at all, because the assets remain in your individual name and must pass through probate.
The funding process varies depending on the type of asset. Real estate requires a new deed, while bank accounts may require paperwork with the financial institution.
Some assets, like retirement accounts, typically use beneficiary designations rather than direct transfers. Each type of asset has its own process and requirements.
Key Takeaway: Funding a living trust means changing the legal ownership of your assets so they are held in the trust’s name. Without this step, the trust document does not affect those assets, and they may need to go through probate.
Which Assets Can You Transfer Into a Living Trust?
Most types of property can be transferred into a revocable living trust in New Jersey. The key is identifying every asset you own and determining the correct method for transferring each one. Below is an overview of the most common categories.
| Asset Type | Transfer Method | Notes |
|---|---|---|
| Real estate | New deed recorded with the county clerk | Requires notarization and filing fees |
| Bank accounts | Retitle with financial institution | Checking, savings, CDs, money market |
| Investment accounts | Retitle with brokerage firm | Stocks, bonds, mutual funds |
| Business interests | Assignment document or amended operating agreement | LLC membership, partnership shares |
| Personal property | Written assignment | Jewelry, art, collectibles, vehicles |
| Life insurance | Change ownership or beneficiary designation | Consult with an attorney on tax implications |
| Retirement accounts (401(k), IRA) | Beneficiary designation only | Do not retitle directly into trust |
Some assets require special attention. Retirement accounts such as Individual Retirement Accounts (IRAs) and 401(k) plans should generally not be retitled directly into a trust, because doing so can trigger immediate income tax on the entire account balance. Instead, you may name the trust as a beneficiary, though this decision has significant tax consequences and should be discussed with an attorney.
Life insurance policies present a similar choice. You can name the trust as the policy’s beneficiary, which gives the trustee control over how the proceeds are distributed. Naming the trust as beneficiary can also help keep the proceeds private, since they will not pass through probate.
Key Takeaway: Most assets can be transferred into a living trust, but each type requires a different process. Retirement accounts and life insurance typically use beneficiary designations rather than direct retitling, and the tax implications of each approach vary.
How Do You Transfer Real Estate Into a Trust in New Jersey?
Real estate is often the most valuable asset in a New Jersey estate, and transferring it into your trust is one of the most important funding steps. The process involves preparing and recording a new deed that conveys ownership from you as an individual to you as trustee of your trust.
What Documents Do You Need?
To transfer real property into a living trust, you typically need to prepare several documents. A new deed, usually a bargain and sale deed, conveys the property from your name to the trust. New Jersey generally requires the appropriate GIT/REP form to accompany a deed when real property is transferred. If you are claiming a full or partial exemption from the Realty Transfer Fee, an Affidavit of Consideration (Form RTF-1) must also be filed.
The deed must be signed, notarized, and recorded with the county clerk’s office in the county where the property is located. For homeowners in Ocean County, deeds are recorded at the Ocean County Clerk’s Office at 118 Washington Street in Toms River. Your attorney can assist with preparing and filing the documents to avoid any issues with the transfer.
Will a Transfer Trigger a Due-on-Sale Clause?
Many homeowners worry that transferring their home to a trust will trigger the mortgage’s due-on-sale clause. Under the federal Garn-St. Germain Depository Institutions Act of 1982, lenders generally cannot enforce a due-on-sale clause when a borrower transfers property into a revocable living trust, as long as the borrower remains a beneficiary of the trust and continues to occupy the property. This protection applies to most residential mortgages.
It is still advisable to notify your lender before making the transfer. While the federal law provides protection, keeping the lender informed can help prevent administrative confusion or unnecessary inquiries about the status of your loan.
Key Takeaway: Transferring real estate into a trust requires a new deed, tax forms, and recording with the county clerk. Federal law generally protects homeowners from having their mortgage called due when transferring to a revocable trust, but notifying the lender in advance is a good practice.
How Do You Transfer Bank and Investment Accounts?
Financial accounts are among the easiest assets to transfer into a living trust. The process involves contacting each financial institution and asking to retitle the account in the name of the trust. Most banks and brokerage firms have standard forms for this purpose.
You or your attorney will typically need to provide the financial institution with a copy of your certification of trust. Under N.J.S.A. 3B:31-81, a certification of trust is a shorter document that confirms the trust exists and identifies the trustee, without requiring you to share the full trust terms. This allows you to maintain privacy while giving the institution the information it needs to retitle the account.
When retitling an account, the new account name will generally follow a format like “Your Name, Trustee of the [Your Full Trust Name] dated [Month Day, Year].” In many cases, your day-to-day access remains similar, but some institutions may issue a new account number or require updated checks, debit cards, or online-access settings.
For checking and savings accounts, you may also want to update any linked debit cards, automatic payments, and direct deposits to reflect the new account title. Some institutions handle this seamlessly, while others may issue new account numbers. Ask the bank about its specific process before making the change.
Investment accounts at brokerage firms follow a similar process. Request the trust account retitling forms, and submit them along with a certification of trust. Stocks, bonds, mutual funds, and other securities held in the account will then be owned by the trust.
Key Takeaway: Transferring bank and investment accounts involves contacting each institution and completing retitling paperwork. A certification of trust under New Jersey law lets you prove the trust exists without sharing its full terms.
How Do You Handle Retirement Accounts and Life Insurance?
Retirement accounts and life insurance policies require a different approach than other assets. These accounts use beneficiary designations to determine who receives the funds after the account holder’s death, and retitling them directly into a trust can have serious tax consequences.
Retirement Accounts
For accounts such as IRAs, 401(k) plans, and other qualified retirement plans, transferring ownership directly into a trust can be treated as a full distribution. This would make the entire balance taxable as income in the year of the transfer. For most people, this would result in a substantial and unnecessary tax bill.
Instead, the typical approach is to name the trust as the beneficiary of the retirement account. This allows the funds to pass into the trust after your death without triggering an immediate tax event during your lifetime. However, naming a trust as a beneficiary can affect the timeline for required distributions and may reduce the tax advantages available to individual beneficiaries.
Life Insurance
Life insurance proceeds paid directly to a named beneficiary are generally exempt from New Jersey inheritance tax, regardless of the beneficiary’s class. You can name the trust as the beneficiary of the policy, which gives the trustee control over how the proceeds are distributed. This can be useful if you want to stagger payments to beneficiaries over time or if a beneficiary is a minor.
If the policy is payable to the estate rather than to a named beneficiary, the proceeds become part of the probate estate and may be subject to inheritance tax. Naming the trust as beneficiary avoids both of these issues.
Key Takeaway: Retirement accounts should not be retitled into a trust directly. Instead, name the trust as a beneficiary. Life insurance proceeds can pass to the trust through a beneficiary designation, keeping them out of probate. The tax result depends on how the policy is structured and who is named as beneficiary.
What About Business Interests and Personal Property?
If you own a business, your ownership interest can and typically should be transferred into your trust. The method depends on the type of business entity. For a Limited Liability Company (LLC), you would prepare an assignment of membership interest and may need to amend the operating agreement to reflect the trust as the new member.
For a partnership, a similar assignment document is used. Shares in a corporation can be transferred by endorsing the stock certificates to the trust and updating the corporate records.
Personal Property
Tangible personal property, such as jewelry, artwork, furniture, antiques, and collectibles, can be transferred into a trust using a written assignment document. This is sometimes called an “assignment of personal property” or a “bill of sale to trust.” The document simply states that you are transferring ownership of the listed items from yourself to yourself as trustee.
Key Takeaway: Business interests and personal property can be transferred into a trust through assignment documents. Vehicles require a title change through the New Jersey MVC, and you should notify your insurance provider before transferring a vehicle.
What Happens to Assets You Do Not Transfer?
Any asset that remains in your individual name when you pass away is not controlled by your trust. Instead, it must go through probate. In New Jersey, probate is handled through the Surrogate’s Court in the county where the deceased person lived. For Ocean County residents, this is the Ocean County Surrogate’s Court at 118 Washington Street in Toms River.
What Is a Pour-Over Will?
A pour-over will is a safety net designed to catch any assets that were not transferred into the trust during your lifetime. This type of will states that any assets remaining in your individual name at death should be transferred, or “poured over,” into your trust. The trustee then distributes those assets according to the trust’s terms.
The catch is that a pour-over will must still go through probate before the assets can reach the trust. This means those particular assets will not avoid the probate process. However, the pour-over will ensures that even overlooked assets are ultimately distributed according to your trust’s instructions rather than under New Jersey’s intestacy laws.
New Jersey offers simplified affidavit procedures for certain intestate estates. If a person dies without a will and is survived by a spouse or domestic partner, that survivor may use an Affidavit of Surviving Spouse or Domestic Partner if the estate does not exceed $50,000. If there is no surviving spouse or domestic partner, one heir may use an Affidavit of Heir if the estate does not exceed $20,000, with the other heirs’ consent.
Key Takeaway: Assets not transferred into the trust must go through probate. A pour-over will directs those assets into the trust, but they still pass through the probate process first. Thorough funding during your lifetime is the best way to avoid probate entirely.
Living Trust Attorney in Ocean County – The Matus Law Group
Christine Matus, Esq.
Christine Matus, Esq., is the founder of The Matus Law Group and has practiced estate planning, trust, and real estate law in New Jersey since 1995. She earned her Juris Doctor from Touro College, Jacob D. Fuchsberg Law Center, and her Bachelor of Arts in Economics from Douglass College, Rutgers University. She is admitted to the Bar of the State of New Jersey and the U.S. District Court of New Jersey and serves on the Attorney Arbitration Committee and as a Board of Trustee of the Ocean County Bar Association.
Ms. Matus brings a personal understanding to estate planning for families with special needs, and she has dedicated much of her practice to helping families protect the futures of their loved ones. She is a member of the New Jersey State Bar Association and the American Bar Association, an active mediator with the Superior Court of New Jersey, and a sought-after public speaker on topics ranging from special needs planning to real estate law.
What Are Common Mistakes When Funding a Trust?
Many people go through the effort of creating a living trust but fail to fund it properly. Understanding common mistakes can help you avoid them.
- Forgetting to transfer the newly acquired property. If you buy a new home, open a new bank account, or acquire other assets after creating your trust, those new assets must also be transferred. The trust only covers assets that have been placed into it.
- Overlooking beneficiary designations. Assets like retirement accounts and life insurance policies pass according to their beneficiary designations, not your trust or will. If the designations are outdated, the proceeds may go to the wrong person.
- Failing to retitle real estate. Simply listing your home in the trust document is not enough. A new deed must be prepared, signed, notarized, and recorded with the county clerk.
- Not updating the trust after major life changes. Marriage, divorce, the birth of a child, or the death of a beneficiary may require changes to both the trust document and the way assets are titled.
- Transferring retirement accounts incorrectly. Retitling a retirement account directly into a trust can create a taxable event. These accounts should use beneficiary designations instead.
Regularly reviewing your trust and its funded assets is important. Many estate planning attorneys recommend reviewing your trust every three to five years or after any major life event.
Key Takeaway: The most common trust funding mistakes involve forgetting to transfer new assets, overlooking beneficiary designations, and failing to update the trust after major life changes. Regular reviews can help ensure your trust remains fully funded.
Does Funding a Trust Affect Your Taxes in New Jersey?
A revocable living trust is generally treated as a “grantor trust” for tax purposes. This means that during your lifetime, the trust’s income is reported on your personal tax return using your Social Security number. You do not need to file a separate tax return for the trust while you are alive and serving as the trustee.
Transferring assets into a revocable trust does not typically trigger income tax, gift tax, or property tax consequences. Because you retain full control over the trust and can revoke it at any time, the Internal Revenue Service (IRS) treats the transfer as though you still own the assets personally.
New Jersey repealed its state estate tax effective January 1, 2018. However, the state still imposes an inheritance tax on certain beneficiaries. The inheritance tax rate depends on the relationship between the deceased person and the beneficiary.
| Beneficiary Class | Who Is Included | Tax Rate |
|---|---|---|
| Class A | Spouse, civil union partner, domestic partner, parents, grandparents, children, grandchildren, adopted children, stepchildren | Exempt |
| Class C | Siblings, children-in-law | 11%–16% (after $25,000 exemption) |
| Class D | Friends, distant relatives | 15%–16% (no exemption) |
| Class E | Charities, nonprofits | Exempt |
Funding a revocable trust usually does not change whether the New Jersey inheritance tax applies. That generally depends on the asset type and the beneficiary’s relationship to the decedent, not simply on whether the asset passes through a trust or through probate.
Key Takeaway: A revocable living trust does not change your tax obligations during your lifetime. New Jersey no longer imposes an estate tax, but the state’s inheritance tax still applies to certain beneficiaries based on their relationship to the deceased person.
Get Help from an Ocean County Estate Planning Attorney
Funding a living trust involves multiple steps, each with its own paperwork, deadlines, and potential pitfalls. Missing even one asset can mean that your family faces unnecessary delays and expenses through probate.
At The Matus Law Group, our New Jersey estate planning attorneys has guided families throughout Ocean County and Toms River through the trust funding process for more than 30 years. Our trust attorneys handle deed transfers, account retitling, beneficiary designation reviews, and ongoing trust maintenance. We work with the Ocean County Clerk’s Office and the Ocean County Surrogate’s Court to ensure every document is properly filed.
Call The Matus Law Group at (732) 281-0060 to schedule a consultation. Our offices in Toms River and Red Bank serve families across Ocean County, Monmouth County, and throughout New Jersey.
