Most comprehensive estate plans center around a revocable living trust. A key aspect of a trust is to make sure your assets are titled to the trust. If your assets are not properly titled to your trust, your entire estate planning can be in jeopardy, subjecting your estate to unnecessary tax, delay, expense, exposure to your beneficiaries’ creditors or divorcing spouses, and in some cases, even transferring your estate to unintended beneficiaries.
Picture your trust as an empty basket and all of your assets as eggs. Creating an empty basket without taking the extra step of transferring your eggs into the basket can undermine your entire estate plan.
Below are some general comments about how to put your eggs in your basket.
Titling Your Assets
With a few key exceptions, generally you should title all of your currently owned and newly acquired assets in the name of your trust. For example, instead of holding title as, “Bing Crosby,” title should be changed to, “Bing Crosby, Trustee of the Bing Crosby Living Trust, dated June 20, 2013.”
Social Security Number
For basic revocable living trusts, while you are living, the tax identification number for your trust is your Social Security Number. In general, because you have complete control over your trust, the IRS does not recognize the existence of your trust for tax purposes. As a result, you will continue to file your tax returns on your 1040 and your 540 under your Social Security Number as you always have.
Upon your death, your trust will become irrevocable and at that point will require its own tax identification number.
You should sign new signature and ownership cards to re-title all bank accounts or cash equivalents, including treasury bills, money market accounts, and certificates of deposit, to name yourself as Trustee of those accounts.
Before you re-title your certificates of deposit, consult with a bank officer to make sure that the institution does not consider the change in account name to be an early withdrawal that incurs a penalty. Generally, this should not be a problem because your tax identification number for the account will remain the same.
Instruct your financial institution by letter or in person to change the title to your trust. The tax identification number (your Social Security number) on the account for withholding and reporting purposes will remain the same.
Re-titling the account records should have no effect on the name you wish to have printed on your checks. There is no reason to have the name of your trust on your printed checks. Ask your bank to continue to print your individual name on the checks.
If you hold publicly traded stocks and bonds that are already in brokerage or investment accounts, contact your brokers or custodians and direct them to change the title of the accounts to the name of your trust. The procedure for doing so is the same as the procedure for re-titling cash accounts explained above.
Stocks and Bonds Not Held in Investment Accounts
If you possess original stock or bond certificates, there are two ways to transfer the certificates to your trust.
(a) Open a brokerage or investment account in the name of your Revocable Living Trust and deposit your original certificates in the account.
(b) Work directly with the transfer agent for the stock or bond and direct the agent to reissue your stock with your Revocable Living Trust named as the new owner.
Mortgage, Notes, and Other Receivables
If you have loaned money to anyone, you should assign your interest as lender to your Revocable Living Trust by a written document and notify your debtor of the assignment.
Transferring your real property to your trust will require attention to ownership and tax issues based on the nature of the current title to the property. Ultimately, the transfer will require preparing, executing, and recording new deeds for each property.
Tangible personal property such as furniture, works of art, jewelry, clothing, tools, artifacts related to your hobbies, and electronics are transferred to your trust by a written document stating your intent to hold such assets in your trust.
Three categories of assets are generally not transferred to your trust while you are living but instead are controlled by separate beneficiary designations with the financial institution. These categories include (1) Retirement Plans, (2) Life Insurance, and (3) Annuities. It is important to make sure that the beneficiary designations on such assets are coordinated with your overall estate plan.
In many circumstances, it might make sense to name your trust as the designated beneficiary, though special care is required when it comes to retirement plans and certain annuities. In general, the trust must have special provisions to help navigate tricky tax issues and the beneficiary designations must be written in a very specific way. Naming a trust as a beneficiary of retirement plans or annuities should NEVER be done without the guidance of a qualified attorney.
Putting your eggs in the basket is essential to proper trust-based estate planning. While many attorneys leave this critical part of the estate plan to their clients to complete, the task can be overwhelming and can easily lead to major mistakes with devastating consequences. The best procedure is for your attorney to help guide you through this onerous process.
Although it may appear that the information contained in this article is enough of a guide to help you with the trust funding process, there are far too many caveats and other “hidden traps” than can be fully expressed in a forum such as a blog. Be sure to work with a qualified attorney who is licensed to practice law in your community before acting upon any of the information contained in this article.