So you just signed your revocable living trust at your attorney’s office, and you are wondering if there is anything else you need to do to make sure that your estate is protected. The answer is yes! You also need to make sure that your assets are actually re-titled into the name of your trust. Sometimes this process of transferring assets into your trust is called “funding your trust”.
As you know, there are lots of great advantages to having a trust, including (1) avoiding the cost and delay of a probate; (2) avoiding a conservatorship in court in the event of an incapacity; (3) flexibility with distributions; (4) creditor protection for your beneficiaries; and (5) estate tax savings in certain cases depending on the size of your estate.
However, if your trust is not properly funded, then you may not receive all of these advantages. When I meet with clients, many of them believe that, after their trust is signed, they can put the trust binder on the shelf or in a lock box at home and forget about it. This is a serious mistake. Even if you have a pour-over will in place to put your assets into the trust when you pass away if you have not done so already, this could cause your estate to go through a probate if the assets in your estate are titled in your name only and are worth more than $75,000.
Funding the trust simply means titling assets that you own into the name of your trust. Residences, bank accounts, investment accounts (exclusive of 401(k)’s, IRA’s and other retirement accounts – which are discussed below), business interests, tangible personal property, and vehicles should all be titled in the name of your trust. In general, although there are exceptions for insurance owned by irrevocable insurance trusts (which will be addressed in another blog), the beneficiary of most insurance policies should be the trust. Please note that in some cases, it may make sense for the trust to actually own the life insurance policy if it is a cash value policy, so that the trustee can access the cash value if necessary.
Generally speaking, 401(k)’s, IRA’s, and similar retirement assets should not be owned by the trust; otherwise, there may be negative tax consequences (i.e., you may have to pay income tax on the transfer of these assets into your trust). As a result, the big issue for these types of assets is whether to name the trust as the beneficiary of your 401(k) or IRA. I will address this topic in another blog.
Below is an example for how to title assets into the name of a trust:
“John Smith, as Trustee (and his successors in trust) of The John Smith Trust dated March 20, 2014, as Amended”
The key elements are the name of the trustee, the name of the trust, and the date of the trust. I typically include this information in a “funding letter” to my clients to tell them exactly how to do this on their own. I also transfer certain assets for them as part of putting the trust together, such as their Arizona homes, their Arizona business interests, and their tangible personal property. Finally, I also offer to transfer their other assets into their trust for them if needed.
Our firm has helped hundreds of families just like yours handle a wide variety of estate planning, business planning, probate, and elder law issues. When families or business owners are not getting along, we can also handle any disputes and litigation related to their businesses, wills, trusts, guardianships, or conservatorships. Please give me a call, so that I can help you work through these difficult issues with confidence.