Failing to put assets into trusts creates headaches for heirs and probate hassles, says the article “Once You Create a Living Trust, Don’t Forget to Fund It” from Kiplinger. It’s the last step of creating an estate plan that often gets forgotten, much to the dismay of heirs and estate planning attorneys.
Are people so relieved when their estate plan is finished, that they forget to cross the last “t” and dot the last “i”? Could be! Retitling accounts is not something we do on a regular basis, and it does take time to get done. However, without this last step, the entire estate plan can be doomed.
Here are the steps that need to be competed:
Check the deeds on all real estate property. If the intention of your estate plan is to place your primary residence, vacation home, timeshare or rental properties into the trust, all deeds need to be updated. The property is being moved from your ownership to the ownership of the trust, and the title must reflect that. If at some point you refinanced a home, the lender may have asked you to remove the name of the trust for purposes of financing the loan. In that case, you need to change the deed back into the name of the trust. If your estate planning attorney wasn’t part of that transaction, they won’t know about this extra step. Check all deeds to be certain.
Review financial statements. Gather bank statements, brokerage statements and any financial accounts. Confirm that any of the accounts you want to be owned by the trust are titled correctly. You may need to contact the institutions to make sure that the titles on the statements are correct. If there is no reference to the trust at all, then the account has not been recorded correctly and changes need to be made.
It’s also a good idea to review any accounts with named beneficiaries. Talk with your estate planning attorney about whether these accounts should be retitled. The rules regarding beneficiaries for annuities changed a few years ago, so naming the trust as a beneficiary might not work for your estate plan or your tax planning goals as it did in the past.
IRAs and other retirement accounts. These accounts need to be treated on an individual basis when deciding if they should have a trust listed as a primary or contingent beneficiary. Listing a trust as a beneficiary can, in some cases, accelerate income tax due on the account. The trust needs to have proper language to allow the maximum stretchout from the IRS. If the trust is listed as the beneficiary, the ability to distribute assets to trust beneficiaries may be impacted.
The main reason to list a trust as a beneficiary to an IRA or retirement plan is to protect the asset from creditors, financially reckless heirs, or a beneficiary with special needs. Normally, under the SECURE Act, at the end of ten years the proceeds need to be distributed to the beneficiary so these protections would be lost. However, a stand alone retirement plan trust can allow the distributions to stay in trust even after the income taxes have to be paid. An estate planning attorney will know the correct way to handle this.
Making sure that your assets are in the trust takes a little time, but it is up to the owner of the trust to take care of this final detail. The estate planning attorney may provide you with written directions, but unless you make specific arrangements with the office, they will expect you to take care of this. The assets don’t move themselves – you’ll need to make it happen.
My office is open to help you discuss these matters. We can meet in person or virtually through Zoom.
Reference: Kiplinger (Oct. 26, 2020) “Once You Create a Living Trust, Don’t Forget to Fund It”