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
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.
- 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.
- 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.
- 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
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.
- 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.
- 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.
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.
- 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.
- 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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