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Don’t Forget to Fund Your Revocable Trust

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Don’t Forget to Fund Your Revocable Trust

November 5, 2020
Geoff Hoatson

Revocable trusts are a very popular and useful estate planning tool. But the trust will be ineffective if you do not actually place your assets in the trust.

Revocable trusts are an effective way to avoid probate and provide for asset management in the event of incapacity. In addition, revocable trusts -- sometimes called “living” trusts -- are incredibly flexible and can achieve many other goals, including tax, long-term care, and asset-protection planning.

However, you can’t take advantage of what the trust has to offer if you don’t place your assets into it. If you don’t fund the trust, diifferenze your assets may have to go through a costly probate proceeding or be distributed to beneficiaries you did not intend. Not funding your trust can undermine your whole estate plan.

To transfer assets to the trust, whether real estate, bank accounts, or investment accounts, you need to retitle the assets in the name of the trust. To place bank and investment accounts into your trust, you need to retitle them as follows: “[your name and co-trustee’s name] as Trustees of [trust name] Revocable Trust created by agreement dated [date].” Depending on the institution, you might be able to change the name on an existing account. Otherwise you will need to open a new account in the name of the trust and then transfer the funds. The financial institution will probably require a copy of the trust, or at least of the first page and the signature page, as well as signatures of all the trustees. As long as you are serving as your own trustee or co-trustee, you can use your Social Security number for the trust. If you are not a trustee, the trust will have to obtain a separate tax identification number and file a separate 1041 tax return each year. You will still be taxed on all of the income and the trust will pay no separate tax.

If you are placing real estate into the trust, you should consult with your attorney to ensure it is done correctly. You should also consult with your attorney before placing life insurance or annuities into a revocable trust. And consult with your attorney before naming the trust as the beneficiary of your IRAs or 401(k) because that could have tax consequence.

Once your trust is fully funded, don’t forget about it! When you acquire new assets, do not forget to add them to the trust. You should review your trust annually to make sure everything is titled properly.

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The information in this blog post (“post”) is provided for general informational purposes only and may not reflect the current law in your jurisdiction. No information in this post should be construed as legal advice from the individual author or the law firm, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting based on any information included in or accessible through this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country, or other appropriate licensing jurisdiction.
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