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Estate Planning: Funding a Trust
 

Now that you have executed your estate planning documents, the next step of the estate planning process is to “fund” your Revocable Trust. The funding of your Revocable Trust can be somewhat involved depending upon the character of your assets. As you have a more intimate knowledge of your assets and their location than I, it is much more efficient and cost effective for you to take on the primary responsibility for this funding process.

I. THE FUNDING PROCESS

You will find that, when changing title into your Revocable Trust, many banks and other companies will request a copy of the complete Revocable Trust; however, it is usually only necessary to give them a copy of the first page showing the date of execution and the signature page showing that the Revocable Trust was validly executed and notarized. This keeps the terms of the Revocable Trust document private. In some circumstances, it may be appropriate to allow a company to view the trustee powers provisions, however, in the event that a company requests any information in addition to this, I recommend that you call me to discuss how to proceed.

If a company requests a certified or attested copy of your Revocable Trust, let me know and I will provide you with one. Again, your Revocable Trust taxpayer identification number is your social security number.

In order to fund your Revocable Trust, it is necessary to change the title of your assets into the name of the Revocable Trust. The name for your Revocable Trusts should appear as follows:

[Trustee’s name], Trustee of the [NAME OF TRUST]

II. TRANSFERRING ASSETS

You need to consider the following when retitling your assets either in your name, or in the name of your Revocable Trust:

III. Real Estate

Due to the numerous legal issues involved, you will need to prepare deeds and the necessary documents for you to transfer your real estate interests into your Revocable Trust.

IV. Identification of Your Real Estate Assets

First of all, if you own more than one parcel of real estate and are unsure about the completeness of your personal records, I recommend a registry search in each county where you have real estate in order to make sure that we in fact transfer all of your real estate into your Trust. You also need to tell me whether you have inherited any real estate, because real estate may be transferred by will as well as deed. I would need to check the probate records of the person from whom you inherited real estate in order to confirm the source of your title to such property. There will be additional expense to you for such registry searches, so you may choose to rely on your records to provide us your deeds or probate references for all real estate that you now own. If any property is overlooked, however, probate of your Will will be necessary to transfer the property to your Revocable Trust by the terms of your Will.

V. Title Insurance

Secondly, I would like you to consider the title insurance coverage of your property. If you have owned your property for many years, you may have purchased it before title insurance was widely available in New Hampshire. If you do not have such coverage, I recommend that you consider its purchase now. If you buy an owner’s title insurance policy now as trustee of your Revocable Trust, you will assure that your successor Trustee will be covered if a title defect is discovered or alleged at the time the property is sold after your death or at the time of a subsequent conveyance.

If you have an existing owner’s title insurance policy on your property, you may take advantage of that policy. Some title insurance companies will allow us to issue an endorsement to add the Trust as an additional beneficiary with only a preparation fee for the endorsement. Other title insurance companies have required the issuance of a new policy to cover the Trust with a new premium charge. In such cases if you do not choose to buy a new policy, we can help you to take limited advantage of your existing policy by conveying the property with "Warranty Covenants" to yourself as Trustee. This will give you or your Successor Trustee a claim against you individually on your Warranty Covenants that will require the title insurance company to defend you under your existing policy. However, the problem with reliance on your old title insurance is that a defect of title may not be discovered until after your death when the property is sold or at the time of a subsequent conveyance. After your death, a claim against your estate to take advantage of your title insurance policy will be barred by the statute of limitations unless it is filed within six (6) months of your death. Therefore, if you want more complete coverage, I recommend that you purchase a new owner’s title insurance policy insuring yourself as trustee of your Trust under this new deed unless you have an existing policy that the title insurance company will allow to be endorsed to add the Trust.

If you do not have title insurance now, a full title search will be required as a first step to obtain title insurance. This could result in the discovery of a defect in the title that would have to be cleared up before title insurance could be purchased. The advantage of discovering such bad news now rather than waiting is that most defects are found by prospective buyers and buyers are not always willing to wait while a defect is remedied.

We can facilitate the issuance of this title insurance for you or, alternatively, we work with several title insurance companies and could provide you with several references if you are interested in pursuing this matter further.

VI. Homeowner's Insurance

Fourthly, you will need to talk to your insurance agent about adding your trust as a named insured to your homeowner’s policy and any personal umbrella policy that you have. You will want those policies to continue to insure you individually as well. I have attached a sample notification letter that you may utilize for this purpose.

VII. Out-of-State Real Estate

If you need assistance in transferring real estate which is located in a state outside of New Hampshire, then I may need to work with legal counsel in that state in order to review and prepare the necessary documents for the transfer.

VIII. Bank Accounts and Certificates of Deposit

In order to register your bank accounts to your Revocable Trust, the name should be restated in the name of your Revocable Trust as described above. If you presently have a joint account and both of you want to access the account, then the registration for such an account should include the names of both of your Revocable Trusts separated with the word "or." I recommend that you do this the next time you visit your bank.

With regard to Certificates of Deposit ("CD"), some banks will allow you to retitle a CD into your individual name, or in the name of your Revocable Trust before maturity, without penalty. You may, however, find it easier to retitle CDs upon maturity.

Again, the tax identification number of your Revocable Trust will be your social security number.

IX. Stocks and Securities

You should contact your stock broker in order to transfer your securities and bonds into your Revocable Trust. You will find they are familiar with this process and will prepare the necessary paper work for you. For your convenience, I have attached a sample letter that you may use to communicate with your broker.

Any original stock certificates which are not held in a stock brokerage account should also be transferred to your Revocable Trust. If you hold the original certificate, a stock assignment power will need to be prepared.

X. Tangible Personal Property

As to your tangible personal property and household effects, you have already executed a "Bill of Sale" which effectively transfers these items to your Revocable Trust. Vehicles and all other tangible personal property which have a certificate of title are not included in this transfer and will need to be transferred separately.

XI. Motor Vehicles

The Title to all of your motor vehicles should also be transferred to your Revocable Trust. The ownership of motor vehicles not requiring registration with the Department of Motor Vehicles (e.g., tractors, combines, ATVs, etc.) have already been transferred to you as trustees of your Revocable Trust by way of the Bill of Sale discussed above.

XII. Insured Property

You should contact your insurance carriers if insured property is transferred into your Revocable Trust. You want to be certain that any individuals who "use" the property owned by the Revocable Trust are named as an "insured" on the property's insurance policy with the Revocable Trust named as an additional insured. Specifically, keep in mind automobiles. Once again, I have attached a sample letter that you may use to notify your insurance carrier.

XIII. Life Insurance Policies

You should also obtain change of beneficiary forms for any insurance policies and annuities from your insurance agent or directly from the insurance company. The owner's Revocable Trust normally is designated as the primary beneficiary with the owner's spouse as the contingent beneficiary. You should work with your life insurance agent and direct him or her to change the beneficiary of your policies.

XIV. IRAs, 401(k)s and Other Qualified Plans

Consultation with your financial advisor is strongly urged before designating your Revocable Trust as the beneficiary of your tax-qualified retirement plans (e.g., a 401(k) plan) or IRAs. There are many tax and financial implications associated with designating the beneficiary of your qualified retirement plan that you should consider, including both estate tax and income tax issues.

Upon the death of the participant or account owner, the tax law allows a surviving spouse to "roll over" a tax-qualified retirement plan account or IRA account into an IRA, thereby deferring income tax on that asset until the surviving spouse withdraws or is required to withdraw the benefits. If no distributions have been made from the plan or IRA account, the tax law requires that a retirement plan or IRA account that is not rollover over to a surviving spouse be distributed within five years after the death of the participant, or begin with one year of the death of the participant and continue over the lifetime of the "designated beneficiary." If distributions have already commenced and certain rules are met, the tax law allows distributions to continue to the surviving spouse for a period of time. If no individual is the designated beneficiary, or if the beneficiary designation is improper, the death benefit must be paid out within five years after the death of the participant or account owner. In certain instances, a shorter payout may be required, in the absence of a designated beneficiary.

It may be possible to name your Revocable Trust as the designated beneficiary of your qualified retirement plan and IRA benefits, and to allow the trustee to administer these benefits as part of the trust estate. This requires the completion of a proper beneficiary designation form, that is available from your retirement plan administrator. The IRS regulations allow you to name the beneficiaries of your Revocable Trust as the designated beneficiaries, preserving the right to pay the benefits from the IRA or qualified plan over the lifetimes of the Revocable Trust beneficiaries. In order to do this, you must, by your "required beginning date" (usually, but not always, retirement or, if earlier, April 1 after reaching age 70½), either provide the retirement plan administrator with a copy of the trust (and all amendments), or a list of all trust beneficiaries (including contingent beneficiaries), together with a description of the portion to which each beneficiary is entitled and any conditions imposed on the beneficial interest. You must certify that the list is accurate and must provide certified statements regarding any subsequent amendments to the retirement plan administrator.

Again, this is a very complex topic that requires serious consideration and consultation with your financial advisors. I will, of course, also be available to answer any questions.

XV. Closely Held Businesses

Your interest in any closely held business will also need to be transferred. This will require the preparation of additional legal corporate documents. Please call me to discuss how you would like to handle these transfers.

XVI. New Assets

With respect to new assets acquired after the Revocable Trust has been executed and initially funded, the same process is used to convey new assets as was used for similar assets when the Revocable Trust was initially funded. If you are depositing additional monies into a bank account (credit union account or any other account into which you make regular deposits and withdrawals), no new documentation is required. Likewise, the same rule applies when you acquire new securities in a street name account; if the account itself is already registered in your name as trustee of your Revocable Trust, the individual securities in the account do not have to be registered in your name as trustee of your Revocable Trust. Only if you are opening a new account (bank account, credit union account, street name account, and so forth) that is not already registered in your name as trustee of your Revocable Trust do you need to effect documentation registering the account in your name as trustee.

XVII. MOVING FORWARD

Again, due to the nature of this process, it is best that you take on as much responsibility as possible for funding your Revocable Trust. As I explained, we can facilitate the transfer of your real estate on a flat-fee basis per property to be conveyed, if you do not request additional title services, including registry searches to locate your properties or new title insurance. All other legal work provided in connection with the funding of your Revocable Trust will be performed on an hourly-rate basis.

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