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.
· 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.