You have just signed your Revocable Living Trust (RLT). Congratulations. You are finished and your assets are free and clear of probate should you become disabled or die. Right? Wrong!
Like a fine automobile without fuel in the tank, a RLT is not going to perform as designed without “fueling” (i.e., “funding”) it. Is this a “one and done” event? No, you must title some assets in the RLT without delay and others by beneficiary designation upon your passing. Remember: assets that are not titled in your trust may be subject to probate. Consider this an introduction to the three steps to successful trust funding and a look at the two unique assets requiring additional consideration.
The first step is to determine what you currently own, its location and how title is presently held. Make a list of your various holdings. The greater the detail, the more successful your funding. The list you make will also serve double-duty. If you become disabled or die, then your successor trustee will know exactly what assets are in the RLT or outside the RLT. This can avoid an unpleasant “treasure hunt” that can be expensive and time consuming.
Once your assets have been identified, notify the various financial institutions that you have created a RLT. They will want to know the name of the trustee, the trust name and the trust date. Do not be surprised if an institution wants a copy of the whole trust or just certain pages to ensure accurate retitling. It is also important to request written confirmation from each institution that the requested retitling has formally occurred. Note: Some assets should be directly titled in the trust and others by a “beneficiary designation” for postmortem funding. For example, life insurance may be owned outright by the insured with his or her RLT as the primary beneficiary.
Buying and selling, selling and buying. Life goes on after you sign and complete the initial funding of your RLT. You should make sure that you take title to assets in the name of your RLT as you acquire them, or carefully establish the appropriate beneficiary designations for them to fund the trust at death. While you are at it, update the initial list used to begin the funding process. This “inventory” will be essential when your successor trustee is necessary.
Special Consideration Assets
Two types of assets require careful attention when funding your RLT: real estate and retirement funds. A misstep in either instance can be very costly.
- Real Estate: For your own primary personal residence secured by a mortgage, chances are good that you may retitle it to your RLT without written permission from the lender in advance. Nevertheless, if you want to be sure that no “due on transfer” clause will be triggered, a “belt and suspenders” approach would be to get prior approval. Before retitling any real estate that is not your own primary personal residence, make sure you obtain written prior approval.
- Retirement Funds: These are some of the trickiest of all assets, especially when it comes to designating a contingent beneficiary after the surviving spouse. No designations should be made without legal and tax advice.
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