Revocable Trust Funding
A revocable trust must be properly funded by the grantor or settlor during their lifetime, especially if the primary goal of forming the trust is to avoid probate. This article provides a summary of assets that can and cannot be transferred to a revocable trust, as well as a summary of potential issues to consider regarding transferring assets to a revocable trust.
Non-homestead real property that is owned outright with no mortgage should be transferred to a revocable trust.
Alternatively, mortgaged property may not be able to be transferred until the mortgage is paid in full because a transfer may trigger a due-on-sale clause. Refer to the loan documents for additional information. The attorneys at Waldron & Schneider can provide assistance with determining whether mortgaged property can be transferred to a revocable trust.
Homestead real property can be transferred to a revocable trust, but doing so must be done carefully because a revocable trust must be a qualified trust to preserve the homestead exemption.
If real property cannot be transferred to a revocable trust, using a Transfer on Death Deed is another tool that can help avoid probate.
Retirement Accounts and Annuities
Retirement accounts and annuities should NOT be transferred to a revocable trust. Such transfers could trigger unintended income tax consequences. Probate can still be avoided by properly designating a beneficiary on the account itself.
If the primary goal is to avoid probate, the estate or a trust only created in the Last Will and Testament cannot be designated as a beneficiary because doing so will require probate.
Interest in Partnerships, LLCs, and other Corporate Entities
Each corporate entity has its own rules regarding transfers. These rules can be found in the company’s governing documents. Often specific language must be included in the transfer documents and consent of certain parties must be obtained before transferring the interest. If these rules are not followed, the transfer may be void.
Bank, Savings and Other Accounts (including stocks, bonds, etc.)
Bank, savings and other accounts can be transferred to a revocable trust, but it is not necessary to avoid probate. Instead, probate can be avoided by properly designating a beneficiary on the account itself or by making the account joint accounts with right of survivorship.
If an account has no beneficiaries listed, probate proceedings will be required to access and distribute the funds. Also, as mentioned above, if the estate or a trust only created in the Last Will and Testament are listed as the beneficiary of the account, probate will be required.
Life Insurance Policies
Life insurance policies have beneficiary designations so the desired beneficiaries can be designated in that manner, but similar to the possible pitfall for accounts with beneficiary designations, if the estate or a trust only created in the Last Will and Testament are listed as the beneficiary, probate will be required.
Individuals interested in having a life insurance policy owned by a trust can also form a specific type of trust called an Irrevocable Life Insurance Trust.
Automobiles and Boats
Automobiles and boats can be transferred to a revocable trust. However, if a vehicle is not transferred, probate may not be required if an affidavit is signed by all heirs of the decedent. Automobiles and boats purchased after the trust is formed can be purchased in the name of the trust to avoid the step of transferring them in the future and to eliminate the need for the above referenced affidavit.
Depending upon the insurance carrier, insurance rates could change if a vehicle is transferred to a revocable trust, so it is helpful to contact the insurance carrier before making the transfer.
If the transferred real property includes rental properties, the leases may need to be amended to reflect the new owner. To avoid probate, mineral interests should be transferred to a revocable trust. The requirements may vary depending upon the state in which the mineral interest is located, but commonly a transfer deed must be filed and all current oil and gas companies must be notified.
Promissory notes can be assigned to a revocable trust so that the trust becomes the payee. Whether or not this is an option and the steps for the transfer depend upon the terms of the promissory note.
The owner of a safe deposit box can be changed to a revocable trust, which can avoid a probate proceeding in the event that no alternate is named or all no named alternate is available to open the safe deposit box.
This is not an exhaustive list. Please contact the attorneys at Waldron & Schneider for more information and for assistance with forming a revocable trust, determining which assets to transfer to the trust and properly funding the trust.
The legal information in this blog entry is not intended to be a substitute for seeking personalized legal advice from an attorney licensed to practice in your jurisdiction. Further, nothing contained in this article is intended to create an attorney-client relationship with any reader. This article and website are made available by Waldron & Schneider for educational purposes only and to give basic information and a general understanding of the law, not to provide specific legal advice. By using this website you understand that there is no attorney client relationship between you and Waldron & Schneider. The article and website should not be used as a substitute for competent legal advice from a licensed professional attorney in your state. For more information or questions you can contact us and one of our attorneys will be in touch soon.