Attorney & Mediator
Attorney & Mediator

Revocable Trusts – Funding

Many clients go through the process of having a well drafted estate plan prepared that includes a Revocable Trust.  After they have signed the documents and received the Trust, it is put away in the safety deposit box and forgotten.  They thought that they were all through.

Unfortunately, this happens often, but this is unfinished business.  A trust only controls the assets that are in the trust – titled in the trust.  This is known as funding.

It is usual for the attorney who drafted the trust to prepare deeds to transfer all real estate interests into the trust.  However, the grantors are not done.  All other assets need to be transferred into the trust.  If this is not done, the trust will not control the assets and it will become ineffective.

Property left in joint tenancy will pass to the joint tenant upon death.  Assets left in the sole name of one of the grantors will have to go through the probate process.

Once you have signed your Revocable Trust you need to follow through on the funding process.

  • Bank accounts (checking and savings) – you need to go to the bank and request that the accounts be transferred into the name of your trust.  The bank will prepare paperwork for you to sign.
  • Financial accounts – you must contact your financial advisor and inform him/her that you have signed a revocable trust.  Documents will be prepared to transfer your assets into the name of the trust.
  • Life Insurance – you need to execute new beneficiary designations.  Even if you choose to leave your spouse or partner as the primary beneficiary, you will in all likelihood want to name your trust as the continent beneficiary.

Exception:

·           Retirement accounts, such as IRAs and 401(k)s – if you were to transfer these assets into your trust, you would trigger a distribution with negative income tax consequences. In some circumstances you may want to change the beneficiary designation of these accounts to your trust, however, you should discuss the tax consequences with your financial advisor and attorney.

When you Need a Trust – Minor Children

Revocable Trusts provide a host of benefits to the beneficiaries of a deceased loved one.  Probate is avoided and administration is less cumbersome.  These are nice benefits of a revocable trust; however, some clients feel that these benefits do not outweigh the cost of setting up an estate plan with a revocable trust.

A circumstance that make a revocable trust really needed is when the individuals have minor children and there are substantial assets that will pass to the children upon the death of the parents.

If the couple only have Wills, there is no ability to put strings or conditions on money left to children.  If the children are minors, the Court will appoint a Guardian and Conservator to care for the children and their assets.  When the children attain the age of 18, they will receive whatever principal is left.  There will be no conditions on how the money is to be spent.  The child might decide to use it to further his or her education; however, alternatively, it might be used for a sports car.

A revocable trust enables the grantor to put strings on money given to the children and to hold the money in trust for a longer period of time.   The money remains in trust and might only be available for college costs until the age of 22 or 23.  The distribution of the principal left at that point might staggered so that the child receives lump sums at 22, 25 and 27.

When you Need a Trust – Real Property in Multiple States

Revocable Trusts provide a host of benefits to the beneficiaries of a deceased loved one.  Probate is avoided and administration is less cumbersome.  These are nice benefits of a revocable trust; however, some clients feel that these benefits do not outweigh the cost of setting up an estate plan with a revocable trust.

A circumstance that make a revocable trust really needed is when you have a beneficiary that is disabled or is “special needs”.

Needs based government programs such as Medicaid and SSI, provide for an individual’s food and shelter at a very modest level.  The recipient of these benefits may not, with some exceptions, have assets greater than $2,000.

If you leave such an individual a gift through your Will or Trust exceeding this limit, he or she may be disqualified from his or her benefits.  This unintended consequence would create more harm than the potential good of receiving the bequest.

It is important to leave monies to such an individual through a Special Needs Trust which restricts the distribution of funds to third parties for amenities such as transportation, furnishing, and travel for the disabled individual’s benefit.  In this way, you are able to provide for the individual over his or her lifetime, giving an enhanced lifestyle, while not jeopardizing the governmental benefits.