Revocable trusts can be an effective way to avoid probate and provide for asset management in case you become incapacitated. These revocable trusts — also known as “living” trusts — are very flexible, can achieve many other goals and are important tools Beck & Lenox Estate Planning & Elder Law, LLC, uses with its clients. Once created, funding your revocable trust is critical!
Point Verda Recorder’s recent article entitled “Don’t forget to fund your revocable trust” explains that you cannot take advantage of what the trust has to offer, if you do not place assets in it. Failing to fund the trust means that your assets may be required to go through a costly probate proceeding or be distributed to unintended recipients. This mistake can ruin your entire estate plan.
Funding your revocable trust by transferring assets to the trust—which can be anything like real estate, bank accounts, or investment accounts—requires you to retitle the assets in the name of the trust.
If you place bank and investment accounts into your trust, you need to retitle them with words similar to the following: “[your name and co-trustee’s name] as Trustees of [trust name] Revocable Trust created by agreement dated [date].” The estate planning attorney you use to create the trust(s) can provide guidance on how that is done.
Depending on the institution, you might be able to change the name on an existing account. If not, you’ll need to create a new account in the name of the trust, and then transfer the funds. The financial institution will probably require a copy of the trust, or at least of the first page and the signature page, as well as the signatures of all the trustees.
Provided you are serving as your own trustee or co-trustee, you can use your Social Security number for the trust. If you’re not a trustee, the trust will have to obtain a separate tax identification number and file a separate 1041 tax return each year. You will still be taxed on all of the income, and the trust will pay no separate tax.
If you’re placing real estate in a trust, ask an experienced estate planning attorney to make certain this is done correctly.
You should also consult with an attorney before placing life insurance or annuities into a revocable trust and talk with an experienced estate planning attorney, before naming the trust as the beneficiary of your IRAs or 401(k). This may impact your taxes. Beck & Lenox attorneys can provide proper guidance on the ins and outs of trusts, including funding your revocable trust.
Reference: Point Verda Recorder (Nov. 19, 2020) “Don’t forget to fund your revocable trust”