So you had your attorney draft a Revocable Living Trust. You signed it. Then you stuck it in your safety deposit box or a desk drawer. You forgot about it. The attorney said something about “funding” the trust and sent you a letter detailing the steps you needed to take, but you thought to yourself that you would get to it later. Days pass. Then weeks, then months.
Don’t let time get away from you. Sure there are more important things to do. But if you never get around to funding your Revocable Living Trust, you might as well have a will, because your assets are going to have to go through the probate process.
What do I mean by “funding” your Revocable Living Trust? “Funding” refers to the actual transfer of the assets that otherwise would be subject to probate into your Revocable Living Trust. How do you transfer your assets? Simply listing the assets on a Schedule and attaching the Schedule to the trust is not sufficient. You actually must transfer the title, or ownership of the assets.
Allow me to provide an example. Suppose John Smith entered into the John Smith Revocable Trust, under which John Smith is his own trustee, and the original trust was dated April 1, 2003. In order to transfer his mutual fund and brokerage accounts into his trust, he must sign a “change of ownership form” with the mutual fund/brokerage companies transferring title as follows:
John Smith, Trustee for the John Smith Revocable Trust dated April 1, 2003
With most Revocable Living Trusts, John Smith still retains the right to buy, sell, transfer or consume the trust assets. By so transferring, however, the account is now legally titled into the trust, and upon John Smith’s death it should avoid the probate process.
There are certain types of assets that may not be funded into your Revocable Living Trust. These include IRA or 401(k) accounts, life insurance, annuities and perhaps your Florida homestead. The retirement accounts can name a beneficiary outside of the probate process. You should consult with your attorney prior to transferring any retirement account assets into a trust or naming the trust as a beneficiary of the account as there could be adverse income tax consequence associated with that transfer. That is not to say that retirement assets should never be funded into a trust. That issue is complex, and I cannot cover it in the short space of this column.
Life insurance and annuities generally also name beneficiaries, and you should always consult with your own counsel before transferring those assets or designating your trust as the beneficiary of those assets. Your Florida homestead may be best protected if it is left outside of your trust, and I will address that issue in an upcoming column. Again, these are issues you should discuss with your own attorney.
So don’t forget to fund your trust. But as always, consult with your attorney when performing the acts of transferring or funding your assets, as there are complexities and traps for the unwary.