THE VITAL IMPORTANCE OF TITLING YOUR ASSETS IN THE NAME OF YOUR TRUST
Client Golden Rule: All Current And Future Assets Need To Be Titled In The Name Of Your Trust (Except Retirement Plans): Be sure to watch the video (to the left) and read more about it here if you need.
Compared to probate, the ease with which a living trust can pass an estate is remarkably smooth and hassle free. Though the attorney plays a crucial role, YOU — MORE THAN ANYONE ELSE — determine the smooth and successful outcome of your trust. Whether or not your loved ones avoid the “probate quagmire” depends upon your current and continued diligence in making sure that all the assets which you presently own — and all of the assets you acquire in the future — are transferred to, and titled in, the name of your trust (except qualified retirement plans). That is your part in the process and doing so is not difficult, nor does it change your life in any way. You still maintain complete control over your assets to do with as you please; real property cannot be re-assessed for transferring it to your trust; your social security number continues to function as your trust Tax I.D. #, and you continue to report, file, and pay your income taxes just as before. Other than needing to title your assets in the trust, its present real effect on your life is completely transparent and neutral.
Beneficiary Designation Strategies For Life Insurance & Retirement Plan Accounts:
Be sure to watch the video (to the left) and read more about it here if you need.
Warning: “Qualified Retirement Plans” SHOULD NOT BE TITLED IN YOUR TRUST. These include but are not limited to IRAs; KEOGHs, 401Ks; 403Bs. A discussion on how to identify a “Qualified Plan” and what to do with it is discussed under “QUALIFIED RETIREMENT PLANS”. However, as with Life Insurance you are able to designate direct pay on death beneficiaries. See video.
PROPER WORDING FOR TITLING IN THE NAME OF YOUR TRUST.
There are three essential elements for titling assets in a trust:
- The Present Trustee (s) — YOU!
- The Name of the Trust (Usually “your last name trust”)
- The Date of the Trust
The very first page of your trust will set forth the proper wording in big bold letters and will read something like: John Smith and Mary Smith, trustees of the Smith Trust, created on January 1, 1980.
Note: Sometimes clients concern themselves that there may be other “Smith Trusts”. Again, all three of the above elements distinguish the trust — plus your social security number(s). (Note that there is no legal requirement that the title include the wording “Revocable Living Trust”, as it only adds useless verbiage.)
TITLING PROCEDURES FOR MOST ASSET TYPES ARE DISCUSSED:
Though each institution (or asset type) differs slightly in their particular procedures and policies, nothing substitutes for your common sense and persistence in the asset re-titling process. Complying with their paperwork requirements helps guarantee a completed transfer, accurately reflected by their records, insuring a smooth transition at someone’s death or incapacity (your true goal). Do not however, make the mistake of thinking this process to be a legally technical task. It is not — and it is something you should be able to accomplish with minimal time and effort since most institutions receive such requests daily. Simply use a goal-oriented approach, tell them you want your asset titled in your trust, and ask what they need.
Though most common asset types are discussed it is impractical to cover every kind. If you don’t see it discussed here, approach the logical person or entity in charge of titling or ownership records, tell them you want your asset titled in your trust, then comply with the necessary procedures and paperwork.
HELPFUL DOCUMENTATION (PROOF PAGES):
Whenever you approach anyone to title an asset or account in the name of your trust we suggest you begin by supplying a copy of the first page of your trust (“Declaration Page”) and last page (“Signature Page”) of your trust. The first page (“Declaration Page”) provides titling and other relevant information for titling purposes, and when coupled with the “Signature Page” it proves the existence of your trust (which is why we refer to these as the “Proof Pages” of your trust). Generally this is the only paperwork from your trust that you need to supply. Once you give them a copy of the “Proof Pages” many entities will then only need your signature in a few places. Others however, may ask you to fill out some short forms sometimes referred to as a “Trust Certification Form”.
FILLING OUT A TRUST CERTIFICATION FORM:
In filling out any forms remember the answer is almost always you (or you and your spouse if married)!
- Who is the Trustor? You are (and your spouse if married).
- Who is the Settlor? You are (and your spouse if married).
- Who is the Grantor? You are (and your spouse if married).
- Who is the Trustee? You are (and your spouse if married).
- Who is the Beneficary? You are (and your spouse if married).
- Successor Trustees? That’s who you named to take over management of the trust if something happens to you (if you don’t remember the names are listed on page 2 of your trust).
- Powers and Authorizations? As a rule, anything they are asking about is usually already spelled out and specifically authorized by your trust. Further, this is your trust and you are essentially empowered to do anything you want, so answering “yes” to the question can be considered your authorization anyway!
AUTHORIZING OTHERS TO SIGN ON OR REMAIN ON AN ACCOUNT:
Our advice is to title all your accounts in the name of your trust. If you then wish another “authorized signer” (such as a child) to remain on, or be placed on your account then you will generally have to appoint them as an authorized co-trustee and you can do so by using a form available on our website called “Appointment of Co-Trustee”. Before doing so however please be sure to read the full discussion on granting others signature power as it is important to remember you are essentially giving someone the keys to the safe. If they misuse the asset you still have to pursue them and collect from them! (If they have squandered all the money this could prove difficult to say the least.) So be careful who you grant signature power to. If on balance you are comfortable with authorizing someone to sign on an account then execute the “Appointment of Co-Trustee” form and supply a copy to the appropriate institution. Doing so will allow you to title the account in the trust and should allow the person to be added or to remain on the account.
Beneficiary or POD Accounts:
Some types of accounts allow designating a beneficiary to be paid directly on your death. (Sometimes called POD accounts – Paid on Death.) Though this avoids probate, it does nothing to deal with the event of your incapacity — and often unintentionally enriches the beneficiary with a greater portion of your total estate than others (contrary to what you really intended). The general advice is to title the account in the trust unless it is a small account that you have earmarked for a special person such as a grandchild, or you are sure you understand the repercussions and wish it to stay that way.
Individual Type Assets Discussed Below
New Real Estate: It is very common for people to forget to title their new real estate in their trust. Don’t forget about this! If you want your trust to pass the property then be sure to execute a deed transferring and titling any new (whole or part) interest in real estate into the name of your trust (unless you acquire title directly in the name of your trust).
Warning about Re-Financing Transactions:If you re-finance property which is, or should be part of your trust, we advise doing a new deed immediately after the closing. That is because more often than not, (to make it easier), they demand and have you remove the property from the trust and/or obtain the financing in your individual name.
Identifying a Qualified Plan: The unending variation and list of “qualified plans” make it impractical to name them all. However, you can usually identify a qualified plan since most seem to share the following characteristics: 1) Tax-Sheltered Income — Any amounts funneled into it are deductible from your taxable income. (In other words you are not presently taxed on this money.) 2) Tax-Sheltered Growth — Any growth, interest, or other income which occurs with-in it is also are not presently taxed. 3) Tax-Deferred Until Drawn On — You are only taxed on the amounts which you withdraw. (Theoretically occurring only after retirement when you are in a lower lax bracket.). In some instances there are plans that are part qualified and part unqualified. For estate planning purposes, practicality dictates treating it as if all parts were qualified (relying on the beneficiary designation).
Other Notes on Qualified Plans: Many clients have significant amounts invested in their Qualified Plans. Remember, the qualified plan exists outside of your trust and therefore your trust and trustees are powerless to access it should you become incapacitated. You may want to consider providing a way for someone to access these funds (power of attorney) in the event of your incapacity. Finally, qualified plans are a highly complex, specialized area of law. If you wish to pursue a different beneficiary designation strategy, check with the experts (we are not). The above rules are generally desired and applicable to most.
Several types of assets (including life insurance) allow designating a beneficiary. At your death an immediate payment is made to the named beneficiary. No probate is involved (unless someone took the misinformed step of designating their estate as the beneficiary). Therefore, even though you can, there is little need to title Life Insurance in your trust (unless you care about your trust exercising ownership options in case of your incapacity.)
Why Name Your Trust as Beneficiary of Life Insurance or Anything Else: Think of your living trust as your master estate plan. Theoretically, it is somewhat advantageous to have one master estate plan governing the distribution of the whole, rather than several part and partial plans – and to have everything flow to and through the trust. Part and partial estate planning also sometimes has the unintended consequence of enriching a beneficiary with a larger portion of your total estate than you intended. Think of your trust as your one master estate plan. Usually, if you name the trust as beneficiary the funds end up with whom you want anyway. Further, the trust has the advantage of addressing the issue of administering funds to minor children or who to pay if someone does not survive. A simple beneficiary designation of a named individual does not. Also, it simplifies tax reporting and collecting. After consideration, you may favor leaving well enough alone (especially if it is a small amount). Regardless of your decision, any suggested change in beneficiary designation generally takes a lower priority to first titling your “probatable” assets in the trust.
If you have a brokerage account — and your stock and other ownership certificates are held by the firm as part of your account, all you have to do is change ownership of the account into the name of your trust and you are done. If you physically possess some (or all) of the certificates yourself, the easiest method is to deposit the certificates into an existing account that you have re-titled or opened in the name of your trust (easily done). You can always ask for them back later — and the certificates will have the trust name on them (assuming the account is in the name of the trust when you ask for them back). Simply put, using a broker and/or brokerage account to re-title your securities is the easiest way to accomplish the task. (There are some brokers who will help you, without obligation, as a gesture of goodwill.) Absent your willingness to use a broker or brokerage account as advised, you must go through, for what is to most people, an arduous process. Contact the transfer agents listed on the certificate and ask their procedure.
For many reasons it is more practical to leave your securities with a brokerage firm. (Decisions otherwise are usually based on emotion or misinformation.) It is a much easier transition if you pass away or become incapacitated. Also your holdings are generally consolidated, insured, and better safe-kept.
Understanding the Difference Between a Partnership & Co-Ownership: Confusion often arises when people own real estate together. If it is a partnership interest, the deed names the partnership as the owner and no individual name will appear. If it is co-ownership, the deed names individuals. In such cases, you own a real (estate) property interest which should be transferred to your trust by deed (covered under real estate). On the other hand, a partnership interest is not a real property interest — even if the partnership owns real estate (and a deed is not appropriate).
Valuable Vehicles: If you own or acquire a very valuable vehicle you may want to consider going through the DMV process to title it in your trust. The more valuable the vehicle, the more seriously you should consider this and if you title it in your trust be sure to notify your insurance agent.