Don’t Forget to Fund Your Trust
When Mary passed away, her daughter, Rose, contacted me to discuss what happens next. Rose knew that Mary had made her the Successor Trustee of Mary's Trust. One of the first steps in trust administration includes looking at the titles of the properties that were listed in the schedule of assets in the trust. However, we ran into a problem. At the time Mary had prepared her estate plan, her house was listed on the schedule of assets and transferred into the name of the trust, but subsequently, during her lifetime, Mary had recorded an additional deed (due to a home loan refinance) which left the property in Mary’s name alone and not in name of her trust. So this meant that Mary’s trust was not properly funded and Rose would need to go to court to fix the problem.
When you have gone to the trouble of preparing an estate plan, you expect that it will perform as intended when the time comes. In order to ensure that your trust does its job without a hitch, you will need to make sure that your trust is “funded” throughout the rest of your life. Lifetime management sounds onerous, but I would argue that it is fairly easy. After all, how often do you get a new home or change bank accounts?
As the Settlor(s) and as the initial Trustee(s), it is your responsibility to manage your trust after you have signed the estate planning documents. You need need to make sure that you acquire your property under the name of the trust. The generally accepted format would be to title your assets something similar to this: Mary Maisel, Trustee of the Mary Maisel Revocable Trust.
Like my scenario above, at the time you prepare your estate plan, if you have hired me (or to just about any attorney) to prepare the plan, you will sign a new grant deed for your home. If you refinance (or otherwise borrow against) the house that is held in the Trust, the lender may require that you transfer the property back to yourself as an individual before you execute the loan documents. If this happens, you should ask the title company to prepare a deed transferring the title back to you as Trustee of the Trust as soon as the refinancing is complete. If the title company and/or escrow officer will not prepare the deed, feel free to contact my office so I can prepare the grant deed for you.
Like your home, any additional real estate purchases also need to be properly titled so that your additional properties can be in the trust and subject to the distribution according to your trust. Leaving the property in your name alone will require that a petition be filed in probate court to rectify the problem. This will delay the distribution of the asset to your heirs and it will cost your trust money that your successor trustee did not otherwise need to spend.
Bank Accounts and Safe Deposit Boxes
You should also change the title on your bank accounts, brokerage or mutual fund accounts, certificate of deposit accounts, dividend reinvestment accounts, other financial institution accounts, and safe deposit box to your name as trustee. Many banks will request a Certificate of Trust document which summarizes your Trust without having to give the bank your entire trust document and allowing you to preserve your privacy.
If you do choose to open new accounts at a new bank or other financial institution, be sure to open those accounts using your proper title as trustee and not in your name alone. If you have reasons for leaving some of your bank or brokerage accounts in your name alone, you will need to recognize that should the total value of your assets in your name alone exceed $166,500, a probate proceeding will need to be opened. That number can be reached fast if you are a good saver or high earner. That’s why it’s best to keep everything in the name of the trust.
Personal Property and Cars
If this office prepared your estate plan, then you have already transferred your interest in your household furniture and furnishings and personal effects to the trust by signing the Assignment of Personal Property. If not, I recommend that you have one prepared. In California, you can leave the title to automobiles in your individual name as the California Department of Motor Vehicles has forms for transferring title when the time comes.
Life Insurance Policy
If you have purchased life insurance coverage that would pay out were you to pass away before your children are old enough to manage their own money, you may want to have the insurance policy payout to the trust so that the trustee can manage it. If you are not married to your children’s other parent and you are not sure how the other parent is going to manage the life insurance proceeds, you will probably want to have the proceeds go to your trust. Otherwise, using the beneficiary designation form provided by the insurance company is the preferred method.
Retirement and Individual Retirement Accounts
You should not change the title to Individual Retirement Accounts (IRAs), other qualified pensions, and retirement plans. The disposition of these assets on death should be directed by beneficiary designation as there may be tax implications if they are paid to the trust.
Ultimately, you are the one responsible for making sure that your trust is funded but please remember that you can always reach out to your attorney to ask questions as you manage your trust over the years.
If you would like a free 30-minute consultation to discuss trust funding or estate planning, please contact me via phone or text at 949-416-3575.
If you liked this blog post, please share it with others and like it on Facebook. Thank you!