The Right Way To Put Investments In Your Trust | Repair The Roof Podcast

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Ted discusses the critical importance of properly funding a living trust, particularly focusing on investment accounts. He explains the common misconception that simply having a trust document is sufficient, emphasizing that assets must be retitled or designated correctly to avoid probate. Ted outlines three main methods to connect investment accounts to a trust, highlighting the benefits and limitations of each. He also warns against common pitfalls, such as naming individuals directly as beneficiaries or failing to take action altogether. Finally, he advises listeners on what assets should never be placed in a living trust to avoid potential tax implications and other issues.

Your Living Trust Won't Protect Your Brokerage Account Unless You Do This

Many people breathe a sigh of relief after signing their estate planning documents. The trust is complete, the paperwork is filed away, and they assume their family's future is protected.

Unfortunately, that's where one of the biggest estate planning mistakes begins.

Every year, families discover that a loved one's brokerage account, investment portfolio, or mutual funds were never actually connected to the trust. The trust exists—but the assets it was supposed to protect remain outside of it.

The result?

A costly trip through probate court that could have been avoided with a relatively simple step.

The surprising part is that this mistake isn't limited to people who procrastinate. It often happens to organized individuals who believed everything had already been handled.

Understanding why this happens—and how to avoid it—can make the difference between an estate plan that works and one that falls apart when your family needs it most.

Why Your Trust May Not Control Your Investments

A living trust is often misunderstood.

Many people think it's like a protective umbrella that automatically covers everything they own once it's signed.

It doesn't.

A trust only controls the assets that have actually been transferred into it or properly connected to it.

That means your brokerage accounts, taxable investment accounts, stocks, exchange-traded funds (ETFs), mutual funds, and other non-retirement investment accounts generally remain in your individual name unless additional steps are taken.

If nothing changes after your trust is created, those accounts may still require probate—even though your trust was specifically designed to help avoid it.

That's one of the most common funding mistakes estate planning attorneys encounter.

The Real Cost of an Unfunded Trust

Imagine spending time and money creating a comprehensive estate plan.

Your trust is professionally drafted.

Your powers of attorney are signed.

Everything appears complete.

Then years later, your family discovers your largest investment account was never transferred into the trust.

At that point, the trust has no authority over that account.

Instead, your loved ones may have to navigate probate court before they can gain access to those assets.

Even more concerning, if you become incapacitated before your death, your successor trustee may be unable to manage the account at all unless additional legal documents are in place.

The trust can't manage assets it doesn't legally control.

Think of Your Trust as an Instruction Manual

One simple analogy helps explain the issue.

A living trust is like an instruction manual.

It tells your successor trustee:

  • Who receives your assets
  • When they receive them
  • How those assets should be managed
  • What protections should remain in place

But if your investment account isn't legally connected to those instructions, the account never receives them.

The manual sits on the shelf while the asset follows an entirely different legal process.

That's why funding a trust is every bit as important as creating one.

There Are Three Ways to Connect a Brokerage Account to Your Trust

Not every investment account is handled exactly the same way.

Depending on the type of account and the financial institution involved, there are several options available.

Understanding the differences can help you determine which approach best fits your situation.

Option 1: Retitle the Brokerage Account Into the Trust

For many taxable brokerage accounts, this is often considered the strongest option.

Rather than leaving the account in your individual name, ownership is changed so that the trust becomes the legal owner.

Many people worry this could trigger taxes.

Fortunately, for a revocable living trust, simply transferring ownership into the trust generally is not considered a taxable event because you and your revocable trust are treated as the same taxpayer during your lifetime.

This approach offers an important advantage that many people overlook.

It helps protect you during both:

  • Incapacity
  • Death

If you become unable to manage your finances, your successor trustee can often step in immediately and continue managing the account according to the trust's terms.

That continuity can eliminate significant delays during an already stressful time.

Option 2: Name the Trust as the Transfer-on-Death Beneficiary

Some brokerage firms allow you to leave the account in your individual name while naming your trust as the Transfer on Death (TOD) beneficiary.

Upon your death, ownership transfers directly into the trust after the required paperwork is completed.

This can successfully avoid probate for that account.

However, there's an important tradeoff.

Because the account remains in your personal name during your lifetime, your successor trustee generally cannot manage it if you become incapacitated.

Instead, your family may need to rely on a financial power of attorney.

If that document is unavailable—or if the institution refuses to honor it—court involvement may still become necessary.

For families concerned about disability planning, that's a significant distinction.

Option 3: Do Nothing

Unfortunately, this is the option many people choose without realizing it.

The trust gets signed.

The investment account stays exactly where it is.

No ownership change.

No beneficiary designation.

No follow-up.

Years later, the account has nowhere to go except probate.

Ironically, this is often the very outcome the trust was intended to prevent.

The Hidden Risk of Naming Individuals Instead of Your Trust

At first glance, naming a child or family member directly as the beneficiary may seem like the easiest solution.

The account transfers quickly.

The paperwork appears simple.

But simplicity can come with hidden costs.

When assets bypass the trust completely, they also bypass many of the protections built into your estate plan.

Depending on the circumstances, that inheritance may become vulnerable to:

  • Divorce proceedings
  • Creditor claims
  • Lawsuits
  • Financial mismanagement
  • Distribution before a beneficiary is financially mature

If your trust was specifically designed to protect future generations, naming individuals directly may unintentionally eliminate those safeguards.

Not Every Investment Account Can Be Moved Into a Trust

This is another area where confusion is common.

While many taxable brokerage accounts can often be transferred into a revocable trust, certain employer-sponsored investment plans generally cannot.

Examples may include:

  • Employee Stock Purchase Plans (ESPPs)
  • Employee Stock Option Plans
  • Certain employer-sponsored stock ownership arrangements

These plans often have restrictions imposed by the employer.

In these situations, different planning strategies may be necessary.

That's one reason estate planning should never rely on assumptions or one-size-fits-all advice.

Each asset deserves its own review.

One Small Oversight Can Become a Major Family Problem

Estate planning isn't just about documents.

It's about making sure every asset actually works with those documents.

One missed account can delay administration, increase expenses, and create unnecessary stress for the people you intended to protect.

The unfortunate reality is that these mistakes often aren't discovered until someone dies or loses capacity.

By then, the options become much more limited.

A periodic review of your trust funding can help identify these gaps while they're still easy to correct.

Two Questions Every Brokerage Account Should Answer

If you have a taxable investment account, there's a simple exercise you can complete this week.

Pull out your latest brokerage statements and ask:

1. Is this account titled in the name of my trust?

2. If not, is my trust listed as the Transfer on Death (TOD) beneficiary?

If the answer to both questions is "no," it's worth discussing your options with your estate planning attorney.

A funding checklist can help ensure every account receives the appropriate review instead of leaving important assets to chance.

The Bottom Line

Creating a living trust is only the first step.

Funding it correctly is what allows it to function when your family needs it most.

A properly connected investment account can help simplify administration, reduce delays, and support the goals you've already invested time and money into planning.

But every account is different, and the appropriate strategy depends on your individual circumstances, the type of account involved, and your overall estate plan.

Before making changes to ownership or beneficiary designations, consult with a qualified estate planning attorney and your tax advisor to determine the approach that's appropriate for your situation.

Transcript: Prefer to Read — Click to Open


Ted (00:00.078)

You set up a living trust, but is your brokerage account actually in it? A lot of people assume the account is covered when it never got moved. In other words, they think that their trust is a magic book. This one gap can send it straight through probate when you pass away or become incapacitated. Today I’m going to show you three ways to put your investment account into your trust the right way. Let me start with the part that surprises almost every client.

Who walks into my office? I had a client come in last year, a retired teacher, well prepared, organized, had a folder with her trust documents, her healthcare power attorney, everything. She had created her trust eight years earlier. Every document was signed. But when we pulled her brokerage statements, her Fidelity account, her Schwab account, her municipal bond fund, none of them were titled in the name of her trust. Eight years went by. Her family would have walked straight into probate court.

If she became incapacitated or when she died. The good news, we caught it in time. But a lot of families do not. Here’s what she did not realize. A trust only controls what is actually inside it. Your investment accounts, your brokerage accounts, your stocks, and your mutual funds do not automatically move into your trust just because the document was signed. They sit in your personal name. And when something happens to you,

Whether that is incapacity or death, those accounts have no way to transfer without going through probate court. Your attorney drafted the trust carefully, but nobody finished the funding. That is the gap. Here is a way to think about it. A trust is a set of instructions. It tells your successor trustee what to do and how to manage and distribute what you own. But if your investment accounts are not connected,

To those instructions. The trust has no authority over them. The instructions sit in a drawer. The accounts go their own way. The fix is not complicated, but you have to know which path is right for each account. Getting each one right is exactly what separates a working estate plan from one that falls apart when your family needs it.

Ted (02:17.142)

There are three ways to connect an investment account to your trust. Let me walk you through all three. This is the most protective option. It is the one I walk all my clients through first. Here’s how it works: you contact your brokerage firm, whether that is Fidelity, Schwab, Vanguard, or your local financial institution, you ask them to retitle the account so that your trust becomes the legal owner. You stay in complete control.

You can still buy, sell, and trade exactly as you always have. Your Social Security number stays attached to the account. The only thing that changes is the name listed as the owner. Now, let me answer the question that comes up almost every single time. Does moving my investment account into the trust trigger a capital gains tax? The answer is no.

The IRS treats you and your revocable trust as the same taxpayer during your lifetime. Moving the account does not create a taxable event. The only time you owe capital gains is when you actually sell investments inside the account. And if anyone ever suggests you sell your holdings before making the transfer, stop and talk to your CPA first. Here is why this

Option stands above the others. It covers two situations, not just one. When you pass away, your successor trustee steps in immediately to manage and distribute the portfolio. No court, no delays, no probate. That is the obvious benefit. But here is what most people totally miss. If you become incapacitated while you’re still alive, your successor trustee can manage that account for you right then.

Option one covers both disability and death. To get started, bring your certification of trust to the brokerage firm. Most firms will ask for that document before making any ownership changes. Larger brokerage firms with local offices can handle the entire process in one appointment. If yours does not have a local office,

Ted (04:23.468)

You will complete a change of ownership form and most likely need what is called a medallion signature guarantee. Your bank can provide that. Just do not sign the form before you appear in front of the person at the bank completing the guarantee. They do need to witness your signature on the form. One exception worth knowing employer stock plans. Like employee stock options or an employee stock purchase plan.

Cannot be transferred into a trust. Most employers simply do not allow it. For those accounts, you will need to use one of the next two options. This option is simpler to set up. For certain accounts, it is a practical choice. Rather than retiting the account now, you keep it in your personal name. But you go to the brokerage firm and add your trust as the transfer on death beneficiary. Brokerage firms call this a TOD designation.

Some banks call it a POD or payable on death designation. To get it done, call your brokerage firm. Ask for the beneficiary designation form. Write in your trust name exactly as it appears on your certification of trust and submit it. Now, when you pass away, the account moves directly into the trust and your plan takes over with the presentation of a death certificate.

Most major brokerage firms will allow this. If yours does not, that is something to find out now, not later. After your death, your successor trustee manages the assets according to your instructions. If you set up continuing trust for your children or grandchildren, that money will be protected from their divorces, lawsuits, and creditor claims. But there is a real limitation here.

And you need to understand it. Because the account stays in your personal name, your trustee has no access to it while you are alive. So if you become incapacitated, your trustee cannot manage that account on your behalf. Your family would need a separate financial power of attorney that specifically covers your investment accounts if that document is missing. Or

Ted (06:38.614)

If the financial institution refuses to honor it, your family may face a court guardianship or conservatorship just to manage your money while you are still living. In most states, a guardianship or conservatorship takes four to six months, maybe even longer if there are issues, and it can cost.

Several thousand dollars in attorney fees. That is before anyone touches a single dollar of your accounts. If protecting yourself during incapacity matters to you, and I think it should, option one gives you that protection. Option two does not. I want to walk you through two situations that could undo everything you worked hard to put in place. The first is naming a person directly as the beneficiary instead of your trust.

This feels like the simplest path. Your child shows the brokerage a death certificate and the account transfers straight to them. No delays, no trust administration, no paperwork. But naming someone directly bypasses your trust entirely. It does not matter what your trust says. That account goes straight to that person with no protection around it. If your beneficiary is a minor, a court will supervise those funds until they turn 18.

If your beneficiary is going through a divorce, that inheritance could be pulled into the proceedings. If a judgment has been filed against them, creditors can come after it. Your trust cannot protect what never flows through it. The third situation I want to talk about, which you always have this option, is doing nothing. This one catches more families off guard than any other. You set up the trust, you never retitled the account, you never named a beneficiary.

When you pass away, that account has no path forward. The trust does not own it, nobody is listed, and the only way to release those funds is through the probate court. The exact court process your trust was supposed to keep your family out of. Doing nothing is not a safe middle ground. It is the most expensive outcome your family will face. Here’s what I want you to do this week. Pull out your investment account statements. Look at how each one is titled. Then go.

Ted (08:54.606)

Call your brokerage firm and ask two specific questions. First, is this account titled in the name of my trust? Second, is my trust listed as the transfer on death beneficiary? If both answers are no, you have work to do. Bring that list to your state planning attorney and build a funding checklist. Go through every single account one by one and make sure.

You know the answers. Now you know exactly how to connect your investment accounts to your trust the right way. But before you go and start making changes, there’s something you need to know first. Some assets should never go into a living trust. Put the wrong one in, and you could trigger taxes, lose government benefits, or create problems your family cannot undo. Watch. Never put these assets in your living trust.

before you move anything. The one on retirement accounts surprises almost everyone.

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