YEA! I FINALLY HAVE A TRUST! AM I DONE?

According to several polls less than half of Americans have an estate plan so congratulations on getting the first step done.  Putting your affairs in order is a very loving thing for you to do for your heirs and yourself (in the case of your incapacity) and I want to encourage you to finish the job.  Hopefully you went to a qualified attorney instead of some trust mill, but either way the chances that you are done are, unfortunately, slim.  If you have a revocable living trust-based estate plan (as opposed to a will-based estate plan) then what you have paid for is a (hopefully) beautiful (hopefully) complete intention.  Acting on that intention is the next step.


When you finished your trust you won a big battle overcoming the deer-in-the-headlights paralysis most people feel when they consider their own demise, but you still have a war to fight if you truly want to make things go smoothly and inexpensively for your heirs.  And the ongoing war is managing your assets to be in alignment with your intentions.  

Think of the ongoing maintenance of your estate plan like spring cleaning.  During spring cleaning you might do what I do and label several boxes.  One for “give away,” one for "storage," etc.  When you make a trust you are also creating boxes.  One is the “my estate” box and the other is the “revocable living trust” box.  Then you divide all of your things into the two boxes.  Upon your death, the “my estate” box is subject to probate (depending on the total value) and the “revocable living trust” box is not.  Or at least that is the idea (as I said, I don’t know who drafted your trust).  To the extent that you do not put things into the “revocable living trust” box they default into the “my estate” box.  The schedule A attached to your trust is somewhat helpful here.  I say “somewhat” because when it comes to titled assets (your house, for example) you also need to change the title of the asset.  

Now, a full-service estate planner like an attorney may have assisted you with re-titling some or all of your assets, but they may have just given you a letter telling you how to do it.  An online form program certainly just gave you the how-to letter.  I know that you carefully read every word in your estate document binder, but I’ve noticed that most people don’t.  Today is your lucky day, though, because I’m going to help you.  I’m going to give you a quickie cheat sheet here on what should and what should not go into your two boxes.  You still have to do the work, you probably still have to hire experts, but at least you will have an idea on where to start.

“REVOCABLE LIVING TRUST” BOX

• Real estate:  This is the number one thing that almost always goes into the Revocable Living  Trust and, if you went to an attorney, they probably did this transfer for you.  Transfers of real estate into a Revocable Living Trust require the recordation of a new deed in the locality where the real estate is located so check your files to see if you received a new deed from your estate planner.  
• Non-retirement investment and brokerage accounts:  This includes assets held in an investment or brokerage account in your individual name, in joint names with others, or as a tenant in common. This DOES NOT include an account held in a qualified plan including a 401(k), 403(b), IRA, or qualified annuities. With these latter types of accounts a change of title will result in negative income tax consequences. Instead of a change of title they require a change of beneficiary (but see an attorney about whether or not to put it as the first or second beneficiary).
• Cash:  This includes checking, savings, money markets and CDs. However, you need to be careful with CDs because your bank may consider the retitling of a CD into a Revocable Living Trust as an early withdrawal of the funds from the CD. If this is the case, then you’ll have to wait until the CD matures before retitling it into your trust.
•  Stocks and bonds held in certificate form: The original certificate must be returned to the stock transfer agent in exchange for a new certificate. This requires obtaining a "Medallion Signature Guarantee" on the stock transfer form and mailing the original certificates via registered mail and insuring the shares for 2% of their current fair market value. Instead of going through all of this, consider depositing your certificates into a brokerage account that’s titled in the name of your Revocable Living Trust. These can be retitled into the name of your Revocable Living Trust and your trust can also be designated as the primary or secondary beneficiary of the annuity.
• Tangible personal property: This includes personal effects (jewelry, clothing, books, personal papers, personal computers); household goods (furniture and furnishings, antiques, collectibles, art work); motor vehicles (cars, trucks, boats, scooters, airplanes); firearms; pets, horses and cattle; tools; and photos and the like. Note that in some states a motor vehicle titled in an individual’s name can be transferred without probate.
•  Business interests:  This includes shares of stock in a closely held corporation, partnership interests (general and limited), and membership interests in limited liability companies. Be sure to check any shareholders’ agreements, partnership agreements, or operating agreements for restrictions on transfers and specific procedures that must be followed to retitle your shares or interests into the name of your Revocable Living Trust.
• Life insurance:  Life insurance is a tricky issue and you should talk to your lawyer.  Because life insurance could be a large chunk of cash you might want to think about protection against the claims of creditors, which varies widely state to state.  On the plus side, if you change the name of the owner of the policy to the trustee of the trust then the trustee might be able to access any cash value during your life time for your care (if you were no longer the trustee of your own trust), but, again, this gets sticky when you are also considering asset protection ramifications.  
• Monies owed to you: This includes secured and unsecured personal loans that you’ve made to others, such as a mortgage that you hold on someone else’s real estate or that IOU from your cousin’s brother.  
• Royalties, copyrights, trademarks and patents:  Technically these can go in, but your trust needs to be drafted in the right way, refer to the United States Copyright Office and United States Patent and Trademark Office for additional information on assigning these types of interests into the name of a Revocable Living Trust.
• Oil, gas and mineral rights: Depending on the type of ownership interest that you have, retitling your interest into your Revocable Living Trust will require either an assignment or a new deed.

“MY ESTATE” BOX

These items should NOT go into a revocable living trust in most circumstances.

• Qualified retirement accounts: Qualified retirement accounts, including 401(k)s, 403(b)s, IRAs and qualified annuities, should not be retitled into the name of your Revocable Living Trust. Why not? Because if this type of account is retitled into the name of a Trust, then the transfer will be treated as a complete withdrawal of the funds from the account and 100% of the value will be subject to income tax in the year of the transfer. Instead, the primary or secondary beneficiary of the account will need to be changed to your trust (check with your attorney to decide which).
• Health Savings Accounts and Medical Savings Accounts:  HSAs and MSAs can’t be retitled into the name of a Revocable Living Trust. Instead, the trust should be designated as the primary or secondary beneficiary of the account. Check with your estate planning attorney to determine what makes sense in your situation.
• UTMA and UGMA accounts: For a UTMA or UGMA account established for the benefit of a minor child, the child is deemed to be the owner of the account, not the person who established the account or the custodian. Instead of changing the owner of the account, a successor custodian should be designated to avoid probate of the account if the primary custodian dies before the minor becomes an adult.
• Life insurance: I’m putting life insurance in this list as well to highlight the fact that it might be a very bad idea to put life insurance into your Revocable Living Trust, depending on which state you live in and what your circumstances are.   
• Cars, Trucks, Boats, Scooters, Airplanes:  While in general motor vehicles can be retitled into the name of a Revocable Living Trust, some states view the transfer as a sale and will charge a significant transfer tax for issuing a new title in the name of the trust. If this is the case in your state, wait and purchase your new vehicle in the name of the trust. Aside from this, in some states, like California, probate isn’t necessary to transfer ownership of a motor vehicle after the owner dies so putting the vehicle in the Trust is probably an unnecessary complication. However, if your vehicle is a million dollar Ferrari it is a different story so make sure you talk with your attorney about these issues.  In fact, people who own million dollar Ferraris really shouldn’t be trying to make any of these decisions without a full-service estate planning attorney and CPA beside them.

As I’ve said so many times before, you should really talk to your attorney about all of this, but at least you now have the basic ideas and that knowledge should help your conversation with your attorney to be much more efficient.  Good luck!