A revocable living trust is a fantastic Estate Planning tool that we highly recommend to many of our clients. The benefits of the living trust include:
1) keeping your plan private,
2) flexibility and control,
3) quick transfer of assets,
4) creditor protection for your beneficiaries, and
5) avoiding extra probate.
Avoiding probate is often one of the main reasons that people establish a revocable living trust; however, they often do not take the necessary steps to fully fund their trust and remove the assets from their probate estate. Thousands of people each year establish revocable trusts but then fail to properly fund them. The establishment of a trust is only the beginning. One of the biggest mistakes individuals make with regard to trusts is failing to fund a trust. A trust will not fund itself, and you must take the steps to properly re-title assets in the name of your trust. Failure to properly fund the trust and re-title assets will likely result in your assets passing through the probate process. While a pour-over will drafted in conjunction with a revocable living trust will make the probate process significantly easier. An unfunded revocable living trust does not avoid probate; however, fully funding your trust during your lifetime allows you to get the most out of your estate planning documents.
“Funding” is the act of placing your assets into the trust, and this is generally accomplished by re-titling your assets in the name of the trust. The type of funding method depends on the type of asset and other factors. For most of your assets, you will make ownership changes to change the title of your assets from your individual name to your name as trustee of your revocable living trust. Typical funding methods can include bill of sale & assignments (for tangible personal property), deeds (for real estate), and new signature cards for (bank accounts). For other financial assets, such as life insurance, annuities, and retirement plans (401(k)s, 403(b)s, IRAs, and qualified annuities), you will make beneficiary changes to properly distribute those assets upon your death because they cannot be retitled into the name of your trust. Making the proper beneficiary designations for retirement plans (including naming your trust as the beneficiary) should be carefully considered and involve many complex tax and individual family issues.
As long as you are acting as trustee of your revocable living trust, you do not need to obtain a separate tax identification number for your trust or to file a separate trust tax return. Your trust would be treated by the IRS as a “grantor trust” as long as you as the grantor retain the power to control or direct the trust’s income or assets.
For all assets that you choose to title in the name of your Trust, We recommend including the name of the trustee, the name of the trust and the date that it was signed in the following format:
Grantor/Trustee: Peter J. Nosal
Trust Name: Peter J. Nosal Revocable Living Trust
Date executed: June 25, 2018
Example: “Peter J. Nosal, Trustee of the Peter J. Nosal Revocable Living Trust, dated June 25, 2018 and any amendments thereto”
Funding your trust may seem like a daunting for individuals with many different accounts and diverse asset holdings.We generally advise clients to create a plan, start with the largest accounts and work their way through the process. While an attorney may be needed to properly transfer some assets such as a business interest or deed to real property, with a little guidance you can accomplish most of the trust funding steps on your own. For many of our estate planning clients, we knock out some of the larger funding items at the same time the trust is signed. Having a trust, in itself, is great but fully funding your trust will give you the peace of mind to know that your plans will not be disrupted and your beneficiaries exposed to a tiresome and lengthy probate process.
Seek the help of an experienced estate planning attorney to discuss your specific assets, objectives, and how to properly and timely fund your trust. Contact our firm today at (704) 608-3429 or E-mail email@example.com to get started funding your trust.