by: Shaina A. Case
You met with your estate planning attorney, decided that a revocable living trust (“RLT”) is right for you, and signed your trust. Now what? To fully realize all the benefits that a RLT offers—for example, taking care of you in the event of disability, avoiding probate, and offering creditor protection for beneficiaries—your RLT should be “funded.” “Funding” a RLT refers to the process of transferring ownership of your real and personal property from you, wearing your hat as an individual, to you, wearing your hat as trustee of your RLT. Discussed below are commonly owned assets and how they may fund a RLT.
Property that generally is re-titled into the name of the RLT includes your house, mineral interests, and other real estate. This is done by preparing a deed and recording it in the real property records where the property is located. Also, checking, saving, money market, CDs, and brokerage accounts may also generally be titled into the name of the RLT, as well as certain business interests.
Retirement accounts such as traditional IRA, Roth IRA, 401(k), 403(b), certain annuities, etc. are typically not retitled into a RLT, as this can create negative tax consequences. Instead, you should speak with your estate planning attorney regarding how best to designate the beneficiaries of these accounts through a payable on death designation. For example, unless there is concern that the primary/contingent beneficiary of these accounts is a minor or an adult unable or incapable of receiving money in their own name (e.g., special needs or do not spend money wisely), the beneficiaries are often named individuals, rather than a RLT for tax planning and roll over reasons. Life insurance policies may also be retitled into a RLT, or the RLT may be added as a beneficiary. Personal property may also be retitled into a RLT through a bill of sale or other mechanism.
If you go through the process of preparing a RLT, care should be taken to ensure that the RLT is properly funded. How the RLT should be funded varies based on your individual estate planning goals and the types of assets you own. Because estate planning and funding is specific to each person’s needs, please see your estate planning attorney.