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Definition | Advantages | Funding | Administration

Funding the Living Revocable Trust

Funding the Living Revocable Trust is the critical element when creating a Living Revocable Trust. If the Trust is not properly funded, having the Trust is of little value.

The funding process is not difficult to accomplish or understand. Typically, most people have three "pots" of assets. The first pot holds personal property. This includes tangible items, such as household goods, (things that you have in your home,) furnishings, jewelry, etc. The second pot contains intangible property such as stocks, bonds, bank accounts and things of that nature. The last pot holds your real property wherever located.

The process of retitling your assets from your individual name to your name as Trustee is called "funding." The following are examples of what must be done to transfer particular assets into the Living Revocable Trust, thereby funding the Trust.

  1. Bearer Bonds

    The best way to transfer bearer bonds and other forms of unregistered securities into a Living Trust is to execute an assignment, appointing all the grantor's rights, title and interest in those bonds to the Trustee. The bearer bonds, or other unregistered securities being transferred, should be described as specifically as possible in the assignment.

  2. Bank, Savings and Credit Union Accounts

    The mere listing of bank accounts on the transfer of assets schedule attached to the Trust is not sufficient to transfer actual ownership of those accounts. For bank, savings and credit union accounts to be transferred into the Trust, each institution where such accounts are located must be contacted and arrangements made for the accounts to be re-registered in the Trustee's name. This usually requires the execution of new signature cards by the Trustee. It is important to note that the new accounts will continue to use the same social security numbers that were on the original accounts. Some banks mistakenly ask you to get a separate tax ID number to open this account. If this is done, it is incorrect. Your social security number should be used on all Living Revocable Trust accounts.

    Some financial institutions require a copy of the Trust. More and more, however, financial institutions are moving away from requiring a copy of the Trust. Instead they are requesting a simple statement, signed by the Trustee, affirming that he or she is the Trustee of the Trust with full power and authority to act as Trustee.

  3. Stocks, Bonds and Mutual Funds

    If the grantor has securities in a brokerage account and those securities are registered in street name (the broker holds the securities in his account and the client receives a statement,) the transfer of those assets is relatively simple. The grantor instructs the account executive to change the title of the account to the Trustee's name. The account executive should be given the correct name of the Trustee and told how the account is to be titled. Often, the Trust instrument will specifically state the name of the Trust agreement, in which case that name should be used in identifying the account. It is always a good idea for the attorney to follow-up with the account executive and make certain the account has been properly retitled.

    If the grantor owns securities that are not in a brokerage account, he or she may wish to open a brokerage account and give the securities to the account executive for registration. If for some reason the grantor does not wish to have a brokerage account, the securities must be sent to the transfer agent of record, along with supporting documentation such as signed stock powers. It is wise for the attorney to prepare a letter of instruction for his client's signature, addressed to the broker or transfer agent, specifying which security is to be transferred to the name of the Trustee.

  4. Closely-Held Stock

    Stock owned by the grantor in a closely-held corporation can easily be re-registered to the Trustee's name by tendering the stock to the transfer agent along with the necessary stock powers. If this closely-held corporation is owned solely by the creator of the Trust, then canceling the original stock certificates and re-issuing them in the name of the Trustee for the Trust is all that is required to transfer those stock shares into the name of the Trust.

  5. Professional Service Corporations

    A professional service corporation is a corporation owned by a professional such as a certified public account, lawyer or doctor. A Trustee cannot be the owner of stock in a professional service corporation. Florida Statute 621.09 specifically provides that capital stock in a professional service corporation can be issued only to individuals who are licensed or legally authorized to render professional services. Florida Statute 621.11 further provides that shares in a professional association may be sold or transferred only to another individual who is eligible to become a shareholder of such a corporation.

  6. Partnerships

    Unless the partnership agreement stipulates otherwise, there is no prohibition against a Trustee also being a partner in a partnership agreement, either limited or general. Moreover, a partner may assign his or her partnership interest and, unless otherwise provided for by another partnership agreement, the assignment does not dissolve the partnership.

  7. Life Insurance, Annuities and Qualified Plans

    The general rule is that a Living Revocable Trust does not become the owner of life insurance, annuities or qualified plans (401K, IRA, etc.). Normally these instruments designate beneficiaries upon the grantor's death. If a husband dies owning life insurance, his wife is generally the beneficiary of the policy. Beneficiaries have also been selected for annuities and qualified plans. Therefore, these assets will always pass outside probate anyway. One of the few times when life insurance would be retitled in the name of the Trust is when the life insurance policy has a large cash value. Take for example an estate where the husband and wife are cash poor. The husband, as owner of the life insurance policy, may not die but, rather, become incompetent. The wife will have no way of getting to the cash value of the policy to help pay expenses. If that policy is held as an asset of the Trust, then the spouse, as backup Trustee, can step in and use the cash proceeds as needed. In such a case, the Trust will be the first named beneficiary of a life insurance policy. Upon the death of the insured the proceeds of the life insurance policy will be immediately payable to the Trustee for distribution according to the terms of the Trust. In the case of a married couple, when the husband dies the insurance proceeds will be payable to the wife as the successor Trustee to the Trust. This prevents a situation where the husband and wife both die within a relatively short period of time and the second-to-die spouse receives the insurance proceeds outside the Trust estate. If this occurs, the insurance proceeds must go through probate before passing to the heirs.

    Likewise, tax-deductible annuities and qualified plans normally would not be titled in the name of the Trust. These investments have designated beneficiaries and therefore avoid probate. If these instruments are tax-deferred instruments, the spouse will continue to be listed as the first beneficiary but the second beneficiary should be changed to the Trustee of the Trust estate.

  8. Real Property

    One of the greatest advantages to creating a Living Revocable Trust is the ability to transfer real estate without it going through probate. This specifically includes the transfer of real estate in Florida as well as every other state where real property is owned by the decedent.

    There are many problems associated with the transfer of real estate into a Trust if it is done by an out-of-state lawyer or by using a "do-it-yourself" form from a generic, "one-size-fits-all" book on Trusts. For instance, in Florida the home where you live takes on a different legal status than does other real property you own. In Florida, your house is your homestead and you have certain tax advantages and creditor protection rights. Transferring your homestead property into your Living Revocable Trust will not affect your homestead exemption nor will it effect your protection from creditors. Similarly, transferring the property into a Living Revocable Trust will not waive or destroy the $250,000 ($500,000 for married couples) capital gains tax exemption for those every 2 years. In essence, all the benefits you receive now, by ownership of property, will be maintained even though it is owned by your Living Revocable Trust.

    Care should be given to the language of the deed that transfers the property into the Trust, as well as the type of instrument used. Many law firms or out-of-state companies use Quit-Claim deeds to transfer your real property into your Living Revocable Trust. The problem with using a Quit-Claim Deed is that such a deed does not make any warranties of title. This could result in the owner losing any title insurance protection that he previously had. It is preferable to use a Warranty Deed to convey title that normally provides the grantee with prior title warranties.

    With only one exception, Alabama, every state within the United States allows the transfer of property from an individual to an individual's Trust without the payment of documentary transfer stamps. Documentary stamps are the states' tax upon the real estate conveyance. Florida assesses documentary stamps at the rate of $7 per $1,000. That means if your property is worth $1,000, you will owe $7 in documentary stamps. These stamps are not assessed on property transferred to a Living Revocable Trust. The only fees assessed in Florida are the recording fees and an indexing fee. The recording fees are normally $6 per page, plus a $.70 minimum in documentary stamps, and a $1 indexing fee for each name on a deed after the first name. If a husband and wife transfer property from themselves, individually, to themselves as Trustees, then the total cost of recording will be $7.70. In most other states the recording fees vary from $7 to $20 per deed. A few states require small transfer fees that amount to no more than $30 or $40.

    Some states, such as Pennsylvania, require the recording of the Trust instrument. J. Mark Fisher provides his clients with a summary of the Trust for recording purposes. This allows the Trust to be recorded but keeps the personal information private. There are only a few states that require the recording of the Trust instrument. Most states simply require the recording of the deed and other miscellaneous transfer forms and related documents. Generally, funding a Trust with real estate in the state of Florida takes two to four weeks.

    Funding a Trust with real property owned in any other state may take longer depending on that state's requirements and the transfer forms involved. There are forty-nine other states and each state has numerous counties (Florida alone has 67 different counties.) These counties operate like little empires and the recording requirements and necessary forms can vary from county to county within each state. It is best to have either a great deal of patience or the attorney who prepared your Trust document also record your deeds. Most of the time, the recording of real property in other states should be done by the attorney who prepared your Trust documents at either no additional charge or a nominal additional charge.

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