Most people aren’t sure exactly what items go into a Revocable Living Trust, and that is understandable. Most people haven’t given much thought to the issue if they’ve never done a Living Trust before. So I’ll take a moment here to provide some insight.
First, let us discuss what a Revocable Living Trust is from a conceptual standpoint. Think of a Revocable Living Trust (or for this particular Blog discussion, Living Trust, or even just Trust) as a bucket that you have created. This is your bucket and you are free to do with it as you wish. You hold the bucket until such a time as you decide to let someone else hold the bucket, thus you have control over it and its contents. Because you created this bucket, you are free to put almost any item inside the bucket, take items out of the bucket, or even destroy the bucket at will. Therefore putting items in the bucket is better known as “funding the Trust”.
So, now let’s discuss why certain items are more appropriate to hold in a Revocable Living Trust, and why other items are best left outside the Living Trust. Most of us have a home, a car or two, and perhaps an IRA or 401k, life insurance, bank account, and personal items. The home will almost always be held in Trust. The attorney will prepare a deed and the owners essentially deed the home from themselves as persons, to themselves as Trustees of their Revocable Living Trust. Sometimes there will be two steps and two deeds, but that is better discussed in another of my Blogs dealing with Community Property. Next the car: I usually recommend that the car or cars do NOT go into the Living Trust. This is usually true because the car is best dealt with in titling, and because if you get into an accident and the other party involved in the accident sees that the car is owned by the “John Smith Revocable Living Trust”, they may see dollar signs, whether real or imagined, and pursue you harder than they might usually. Of course if there is a collector or special car, or if you own a car collection, the Living Trust may be the best method of holding the property. An Individual Retirement Account (IRA) or 401k and the like are usually best handled by beneficiary designation, and not held in the Revocable Living Trust. Retitling such items usually trigger a taxable event, and that is not good! A Trust can be named as a beneficiary, and we can do some Estate Planning with a Standalone Retirement Trust (or SRT) if the situation is warranted. For the most part, it is better to pass property via a Trust rather than outright for the purposes of protecting beneficiaries. Please see my Blog on “How Do I Keep my Kids Inheritance Safe” for more on the subject. Also, please see my Blogs on IRA, 401k, and Standalone Retirement Trusts. Life insurance, though it doesn’t trigger the same kind of taxable event, is usually also handled by beneficiary designation. Other tax considerations must be analyzed depending on the type of life insurance, and the particular client’s situation.
The whole point of creating a Living Trust is to put some property into the Living Trust. Technically an unfunded Trust may fail if it is never funded, so care must be taken to insure this doesn’t happen. This is where “Trust Mills” and companies like Legal Zoom fall short or even outright fail. An attorney that prepares your proper Estate Plan will make sure the Living Trust is funded in some manner most of the time. If you choose someone other than myself, make sure you ask them what they plan to do about funding the Living Trust.
See lots of estate planning information on my website at: www.myestate-plan.com
Thanks for reading, and please see my other Blogs for more on this subject and others.
William (Dan) Powell
Just like my website, nothing in this blog is intended as legal advice. If you need legal advice, contact an attorney licensed to practice in your jurisdiction. I am licensed to practice law in California. Further, please remember that I speak in generalities in my blog (and on my website). There are so many different factors that can contribute and completely change the outcome that it would not be practical to discuss all of them here. This is why I speak in generalities. Thanks again for reading.
This document is for informational purposes only. Nothing in this is to be considered legal advice. Nothing in this shall create an attorney/client relationship, nor shall it create a confidential relationship. If you need legal advice (in California), feel free to contact me or someone licensed to practice in your jurisdiction. I assume no liability or responsibility for actions taken, or not taken, as a result of reading this information.