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Episode 14: How to Fund Your Revocable Living Trust

Posted on Tue May 7, 2024, on Klenk Law Podcast


Estate Planning Lawyer, Peter Klenk

How to Fund Your Revocable Living Trust

Hello. Today, we’re going to talk about how to fund your revocable living trust. Now, I’ve had a few podcasts about what a revocable trust is and the advantages, but this is a little deeper dig. Because if you formed a revocable trust and signed it, but you don’t put anything in it, you’ve wasted your time. So let’s recap. If you’ve heard the other podcast, you know that a revocable trust is a trust that you create for yourself. It can be you, or it can be you and your spouse together. And it’s YOU, the grantor, you’re the trustees, and you’re the beneficiaries. 

There are variations on the theme, but that’s the most typical arrangement, and you put assets in it so that when you die, nothing has to go through probate. It doesn’t help you with creditors, it doesn’t help you with taxes, but it helps you avoid the probate process. And again, there are a couple of other advantages we’ve gone over in the past. But let’s just stay with that simple concept. So if you’ve signed it, and nothing’s in it, then when you die, well, nothing passes through to trust. So let’s go through some examples. If you own real estate, some people think that if at the end of the revocable trust, you list the real estate that it’s in the trust. That’s not true. 

Real estate is owned by whoever the deed registered with the county says owns it. So if you form a revocable trust, you can say whatever you want is owned by, as far as real estate goes in the document, and it’s meaningless. The deed needs to be filed, and the property needs to be moved in for it to be owned by the trust. It’s not a hard process, we do these all the time, very typically, spouses, the deed is in both of their names. When you come in to sign the trust, we have a deed waiting for you that says that you’re transferring it from your names into the trust. Well, there you go, we file that with the county, the county now knows that the trust owns it. So someday, when you pass, the trust owns the deed. So the successor trustee, perhaps your child or your brother, or somebody, they immediately have access to that property, because the trust owns the property. Okay, so it’s funded with real estate. Now, if you own an LLC that has real estate, then you’d move the LLC, and there’s paperwork that says who owns the LLC, that’s probably you right now. But you change the paperwork to have it owned by the trust, now it’s funded. Now bank accounts, stock accounts, you have some flexibility, because you could move them in easily enough, you’d send a copy of the revocable trust to Vanguard, fidelity, whomever. And you’d say I’d like to open an account as the trustee, and they say, that’s fine, you fill out the paperwork, they then open the account and you move assets in now, the trust owns those stocks for your benefit, right. 

So when you pass their interest, you have another alternative dealt with these accounts is transfer on death or beneficiary designation. So instead, you can go and fill out paperwork to say that when I die, the asset pours into the trust, you get the same result this way. Someday, if you’ve died, your successor trustee, let’s say your child, they go to Vanguard and say, hey, my, my mom has passed, they look at the death certificate, they look at the transfer on death certificate, and it says that at your death, it goes to the trust, they verify your child is the trustee and the asset portion, very simple. So you have a couple of different options with bank accounts, stock accounts about how to make the whole system work. Well, another asset that a lot of people have is life insurance. Well, you don’t have to actually move the policy into the trust, but you’d update the beneficiary designation to say that the trust is the beneficiary. So again, you die someday, your successor trustee goes to the life insurance company proves that you’re past, and then they collect the check and put it into the trust. So that works fine. So you have some alternatives with some assets. 

But again, some assets like LLCs and corporations and real estate, you have to actually move them in and do that chore. Now, one asset you don’t usually put into the revocable trust is your qualified plans and IRAs, 401 K’s, 403 B’s and whatnot. That’s because you’ve signed a contract with the government to treat that in a certain way. Now, you could name the trust as beneficiary, but there might be adverse income tax ramifications with that. So you want to think that one through and make sure you get some good advice about it. In some cases, it makes sense. But in most cases, you leave these things directly to the beneficiaries because that’s how you can usually maximize the tax advantages. But you know, it’s at least it’s a separate track, something for you to think about. At the end, what you want to do is go through the list of all your assets. 

And you want to make sure that they’re either owned by the trust, pour into the trust when you die, or they go to somebody else. When you die by beneficiary designation for a reason like an IRA. If there’s something still sitting around out there, well, then there has to be a reason for that, or probably should be moved into the trust. You need to talk to your professional about that to make sure that works well. If so, you’re set. 

Now you might ask, well, then if I have a revocable trust, and I’ve done all these chores, and I’ve moved my assets into the trust, or they pour in, why do I need a will? Well, that’s because you can’t promise me for sure you won’t die in a way that there isn’t a lawsuit. Right? So let’s say you’re in a car accident and somebody killed you. There’s a lawsuit, we have to go sue that guy, he killed you, we get a wrongful death suit, the trustee of your trust doesn’t have any legal right to bring that suit. It has to be done by your executor. So you have what’s called a pour-over will

That way, your executor can file the will become the executor, sue the person, collect the money and it pours over into the trust, right, though that’s why it’s called a pour-over well, so that way it covers anything that might come up. 

So you plan as well as you can you have the will, is a pour-over will as a backup. And if so, the system should work perfectly well. So good. Because remember, if you’re going into the work of doing a revocable trust, you want to make sure that everything works as smoothly as possible, as easily as possible when you pass. 

So if you have any questions about a New Jersey or Pennsylvania revocable trust, and you’d like us to help you with that, we do them every day. Happy to help you with it, give us a call. And go ahead and look at the website, for any other information – there’s a lot of details there. 

Have a good one and remember, death and taxes is not a great subject that people like to talk about, but we all need to deal with it. But with a little preparation, it really can be just fine. Take care. Thanks.

Peter KlenkPeter Klenk

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