Asset and Wealth Protection

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Funding Your Revocable Living Trust

In the year after Michael Jackson’s death, his estate made an estimated $120 million. Although the music icon had a revocable living trust, his beneficiaries have spent years battling it out in court and with the IRS, because Jackson never bothered to fund it.

As noted in our previous post, a revocable living trust is useful in avoiding guardianship and probate proceedings, minimizing estate administration costs, and stipulating how an estate is to be managed and distributed. However, it will accomplish none of those things if the trustor’s assets are never placed in it.

Transferring property to the Trust

The trustee of a trust only has control of assets that are part of the trust. For property to be included in a trust, title to the assets must be changed. For example, if Jane Doe establishes a trust, title to her assets should be changed to her name as trustee of her trust (including the date of formation):

Jane Doe, Trustee, or her successors in interest, under the Jane Doe Trust dated January 1, 2017

The transfer of real estate holdings, closely held business stock, partnership interests, intellectual property, promissory notes, personal property (through a bill of sale) and certain other major assets to the trust is generally made by the trustor’s estate planning attorney immediately after the trust is signed. The attorney can also prepare the necessary paperwork that will enable their clients to easily transfer their bank and investment accounts to their trust.

Note that some property generally should not be transferred into a revocable living trust, such as an IRA or other tax-deferred plan. For example, when a spouse or other person is named beneficiary, they will be able to roll the account over to their own IRA. When a trust is the beneficiary, the tax-deferred account must be paid out and distributed as cash within a limited period of time.

The Pour Over Will

A "pour over will" is a will that accompanies a revocable living trust. It follows all the same formalities of a will, except that it names the living trust as the beneficiary and directs the executor to transfer any assets not in the trust to the trust, and then to distribute those assets in accordance with the terms of the trust. Through a pour-over will, any assets not already in the trust at the time of death may be transferred to the trust, but only along with the expense and hassle of probate.

Another option of getting assets into a trust after the trustor’s death is to claim that it was the trustor’s intent to transfer the assets into their trust during their lifetime. This may be done through a Heggstad Petition, accompanied with evidence such as a Schedule “A” listing of trust assets created by the trustor during their lifetime. Note that Heggstad Petitions are not always successful.

Full Service Tax Firm in San Francisco

Note that changing title to a revocable living trust does not affect the trustor’s ownership in their property – it simply facilitates administration and control in the event of the trustor’s incapacity or death. For assistance with the creation and funding of your revocable living trust, contact the estate planning attorneys at Moskowitz, LLP.

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