The Keys Law Office
West Chester, OH. 45069-6316
Ph (513) 349-1678
Fx (513) 759-9899
TRUST FUNDING GUIDELINES
This letter will describe how you should go about transferring your assets to yourselves in your capacity as trustees, and to answer some questions you might have at this time. Please retain this letter for future reference.
I. TRUSTS IN GENERAL AND YOUR LIVING TRUST
When you signed the trust agreement, you created a new legal entity separate from yourself called a living trust. Like a corporation, your living trust has its own identity and may have its own legal relationships. There are three parties in the trust document. First, there is the person who sets up the trust, called the Settlor or Trustor. Second, there is the person who administers the trust provisions and manages the trust assets, called the Trustee. Third, there are the persons for whom the trust assets are intended to benefit, called the beneficiaries. Initially, you as the Settlor, may also be the trustee, and beneficiary of your trust. However, there may come a time in the future after your passing when the positions of trustee and beneficiary may be occupied by the same or different persons.
Because you, as the Settlor of your trust, may modify or terminate the trust, your trust is known as a revocable or “living” trust. During your lifetime, you may revoke or amend your trust in whole or in part. Upon your passing, your trust will become irrevocable, and may no longer be altered, amended, or revoked by any person. Most of the comments in this letter relate to the period of time while you are alive and able to exercise the powers you have as the Settlor.
II. THE TRANSFER OF ASSETS TO YOURSELF AS TRUSTEE
A. WHY TRANSFER ASSETS TO YOURSELF AS TRUSTEE?
The reasons for creating the trust include avoiding guardianship proceedings should you become incapacitated and are unable to manage your assets; avoiding probate and the costs, fees, delays and problems associated with the probate process for assets that are owned in your own name at the time of death; keeping your affairs and those of your family private; avoiding the payment of federal estate tax on assets over the lifetime exemption amount (currently $5 million); and finally to care for your heirs and pass your estate as easily and efficiently as possible.
At the end of your trust agreement is a schedule listing the assets that belong to you in your capacity as trustee, and which are subject to the terms of the trust. Assets that are transferred into your trust should be recorded on the schedule. If you remove assets from your trust, put a line through the deleted asset and place the date on which the asset was removed. If you have any questions as to the recording of transfers, please contact me. The trust agreement says, in effect, that the mere listing of assets on the schedule is enough to cause those assets to be subject to the control of the trustee. However, to the extent that assets have documents of title (real estate, autos, etc.), the legal title to those assets must be changed to reflect their ownership by the trust. I make this recommendation because the ultimate reasons for creating the trust, e.g. avoiding court proceedings, will be more easily achieved if the assets are held in the name of the trust.
The trust is still valid even if you do not change the legal title of your assets into the name of your trust. If you fail to transfer your assets and you die or become disabled, there are court proceedings available to effect the change of title to some of the assets. But avoiding court proceedings by transferring the legal title of these assets into the name of the trust will help to accomplish the purposes for which the trust was created in the first place.
B. WHAT TRUST NAME SHOULD BE USED FOR ASSETS?
For Assets in Husband’s Trust:
HUSBAND’S NAME, Trustee, or his successor(s) in Trust, under the HUSBAND’S NAME REVOCABLE TRUST AGREEMENT, including any amendments thereto, dated ________________________.
For Assets in Wife’s Trust:
WIFE’S NAME, Trustee, or her successor(s) in Trust, under the WIFE’S NAME REVOCABLE TRUST AGREEMENT, including any amendments thereto, dated ____________________.
I recommend the above language be used whenever possible. However many institutions do not have enough room on their forms or computers to encompass the language in full. In addition, many institutions have their own way of titling trust-owned assets or accounts. Therefore, the exact language need not necessarily be used. However, whatever designation the institution uses, it must show that the asset or account is owned by the trust. You should also be aware that some financial institutions will request a copy of the trust for their records. If possible, you should give only the first and last pages of the trust to the requesting institution. Should you have any questions regarding the correct titling of assets, or the proper documents that should be provided, please contact me.
C. REAL PROPERTY
In order to transfer title to any real property that you may own into the trust, it is necessary to have a new deed prepared for each piece of property being transferred, whether the property is located in state or out of state. I recommend that your real property be transferred from your individual name(s) into the husband’s or wife’s trust. Any real estate title agent can prepare a new deed for you. The cost is usually $150 or less to have a new deed prepared and recorded by a title agent. If you do not know of any, please contact me for a referral.
D. CHECKING ACCOUNTS AND AUTOMOBILES
You may have a checking account in which you deposit funds. I do not recommend that you change the name of your checking account(s) to show the existence of the trust. In order to maintain your privacy with regard to the trust, you may wish to leave the account out of the trust.
A surviving spouse is entitled to one automobile outside of the probate process. Thus, where you have two autos, place one in the husband’s name and one in the wife’s name, or both with joint names. Additional autos, or collectible autos that have unusual value, should be placed in the trust.
E . SAVINGS ACCOUNTS & SAFE DEPOSIT BOXES
I do recommend that savings accounts, certificates of deposit, and especially safe deposit boxes be titled into the name of the trust. However, please be careful in signing trust account cards. Some financial institutions have cards designed for “trustee” accounts, which are different from what you are accomplishing with your living trust. In addition, those cards may conflict with the language in your trust agreement. You should obtain and retain a copy of any account agreement and signature card you sign in your trustee capacity. Should you experience any confusion or conflict, I will be happy to review your situation with you or your banking institution.
F. SECURITIES AND BROKERAGE ACCOUNTS
I recommend that you have any securities or brokerage accounts registered in the name of the trust. I also recommend that you obtain and keep a copy of any new account agreement in which the trust is named.
G. MARKETABLE SECURITIES NOT HELD IN BROKERAGE ACCOUNTS
Any securities which are not held in street name should be re-registered in the trust. To transfer any stock certificates which you hold, you are generally required to submit the stock certificates, along with an executed Assignment with your signature guaranteed by your stock broker or bank to the transfer agent, with written instructions to reissue the certificates in the name of the trust.
H. INVESTMENTS IN LIMITED PARTNERSHIPS
Some limited partnership agreements permit an investor to transfer his partnership interest to a trust, and some do not. If you need assistance in determining whether your agreement allows such a transfer, please forward me a copy of each agreement and any amendments so that the best determination can be made. Generally, investments in general partnerships, corporations, or LLC’s should be left out of the trust and transferred via buy-sell agreements of other available transfer instruments.
I. LIFE INSURANCE POLICIES
If you are the owner of life insurance policies, the beneficiary designation should be changed to the trust. To make the change, either contact the company directly or ask your agent to handle the change. The requirements may vary from company to company. Some insurance companies may require that the owner of the policy be transferred to the Living Trust, rather than simply changing the beneficiary designation. Generally, the proceeds are not subject to probate administration when a beneficiary is named and that beneficiary is anyone other than one’s own estate.
J. PENSION PLANS, IRA’S AND ANNUITIES
In essence, pension plans, IRA’s, and annuities are assets that are already held in a qualified trust, so they cannot be owned by another trust. If you are married, the wife should be named the first or primary beneficiary of the husband’s qualified assets and vice versa. You should consult with your financial advisor as to whether to name the trust, or your children, as the contingent beneficiary.
K. TAX IDENTIFICATION NUMBER
The most common problem with establishing a Living Trust is that some financial institutions may request that you obtain a new tax identification number. This is not required under the Internal Revenue Code when you establish a Living Trust and you act as your own trustee. Many financial institutions are unaware of this, and you may have to make them aware of this. Do not obtain a new tax identification number, merely use your social security number. If you encounter any difficulty, please have the financial institution contact me.
Many people are under the impression that a financial institution, such as a bank, must act as the trustee. Your trust document provides that a financial institution may, but is not required to, act as the trustee. If a financial institution does become the trustee, then a new tax identification number is required.
L. DURABLE POWER OF ATTORNEY FOR HEALTH CARE & LIVING WILLS
I strongly recommend that you provide your family physician with a copy of your Healthcare Power of Attorney and your Living Will. Please ensure that copies of these documents are placed in your medical file with the physician or the hospital in which you are most likely to be treated.
Thank you for allowing me to assist you with this important family matter. Please contact me if you have any questions.