By Steven J. Gibbs, Esq.
Hello Friends & Colleagues!
So this is HUGE issue in estate planning, not only for beloved clients, but also for non-lawyer professionals! Yes, accountants, realtors and financial advisors are all impacted by Trust funding concerns…
What is Trust Funding, you may ask?
For our purposes, Trust Funding may be defined as the process of re-titling your assets so as to place them in the name of your revocable living trust rather than your individual name/s. Certain assets may be simply re-titled and other assets may be “pointed” toward the trust by changing the beneficiary designations.
For example, when you create your family living trust your assets will be titled in the manner of John Doe or John Doe and Jane Do. When you create your revocable living trust, it will be given a name like the John and Jane Doe Family Living Trust, or whatever you decide in cooperation with your experienced estate planning attorney. So to re-title an asset you could re-name it as John and Jane Doe, Trustees of the John and Jane Doe Family Living Trust.
People often become confused about whether the actual title on the asset should be changed or whether a beneficiary designation should be used?
The general rule is that “non-qualified” assets may be re-titled into the name of the revocable living trust and that “qualified” assets and other contractual assets to be discussed below should be “pointed” or connected to the revocable living trust through changing the beneficiary designations.
For example, non -qualified assets that could be re-titled would include such things as bank accounts, CD’s, stock accounts, bonds, real property and other assets that do not receive special tax treatment or subject to contractual conditions.
In contrast, assets that receive special tax treatment are IRAs, 401ks, 403bs, and other retirement accounts. Insurance products such as annuities may carry certain “surrender charges” or tax ramifications and so these products are often not “re-titled” but rather pointed toward the revocable living trust through the use of beneficiary designations. Whole life insurance may be either retitled or pointed to the revocable trust as determined on a case-by-case basis.
When you change a beneficiary designation, you generally are obtaining a beneficiary designation change form from your account administrator or agent and inserting the name of the revocable living trust as beneficiary.
Corporate stock may be re-titled into the name of a revocable trust or may be transferred by virtue of a “transfer upon death” provision which would need to be specifically drafted in the corporate agreements.
I CANNOT STRESS ENOUGH that this is an area that requires expert legal counsel because the revocable living trust is not always a primary beneficiary and there are rules regarding identifying a revocable trust as the beneficiary of IRA accounts. An example of this as that beneficiary designations should be titled a certain way so that each trust beneficiary’s lifespan may be used for purposes of the required beneficiary IRA distributions.
All of this assumes that your revocable living trust was properly drafted so as to accommodate all kinds of assets such as IRAs, 401ks, Life Insurance, and S Corporation Stock.
I will repeat my mantra that all of this is case by case specific and requires careful assistance by your experienced estate planning attorney.
I hope this clarifies any confusion about the Trust Funding jargon out there and as always, until next time…
Until next time…
Steven J. Gibbs, Esq.
Steven Gibbs founded the Gibbs Law Office in January 2009, committed to providing client-centered legal services.
Steve as he would rather be called, is not your typical attorney. If you appreciate the staunch egotistical mannerism of most firms, you will be delighted with Steve’s unpretentious approach to educating and then assisting his client. Instead of giving you his complacent and lofty ideas, he would rather pursue your expectations with professional conversation about resolving your concerns under the Law. It’s your life and it’s his job to make your legal expectations come true while using years of his guidance and knowledge.
Steve was admitted to the Minnesota Bar in 1999, the Florida Bar in 2007 and was recently admitted to the California bar. Keeping abreast of law changes in these three States, as well as the United States, assists him in all aspects of the types of law the firm practices.
Along his career path, he was an associate attorney for an insurance defense law firm; an in-house real estate negotiator for Target Corporation; and corporate counsel for Civix, LLC and Vice President for North American Properties where he was responsible for various real estate transactions, including legal issues and negotiating unresolved business issues. Prior to opening Gibbs Law Office, PLLC, he was an associate with the firm of Roberts & Engvalson, P.A. where he gained his knowledge of trusts, estate planing and Wills. He opened his own firm in 2008 and now focuses on laws that will enrich the needs of his clients throughout their lives and those of their children. The firm has developed a practice dealing only with Trusts and Estate Planning, Wills, Medicaid Planning, Elder Law, Real Estate, Business Law and Probate.
Quoting from Steve “I decided to practice in areas that families will need as they progress down life’s path. To help them with a solid foundation that will carry them throughout there lives is a rewarding experience for me and my staff.”