If you have a Revocable Trust, you need to fund it with all of your assets prior to your death or permanent disability, in order to gain the maximum benefit from your planning. Funding refers to the process of transferring assets into the name of the Trustee.
However, transferring assets into the name of the Trustee does not normally apply to IRAs, pension benefits, annuities, or other assets that generate ordinary income tax if you were to cash them in, sell them, or take money out. These are sometimes referred to as tax-deferred assets.
These types of tax-deferred assets are also often subject to beneficiary designations. You should consult with your CPA and also with us, before changing the beneficiary of any tax-deferred assets to your Revocable Trust, or to any beneficiary. You should also never change the ownership or title of these tax deferred assets to the Trustee or any other beneficiary, unless you have a letter from your CPA, and from us, telling you to do so, since this is seldom done.
Changing the name on a mutual fund, which is not tax deferred, should not be a problem, if done properly. However, the mutual fund, itself, needs to understand that you are not anticipating a taxable transaction. For instance, if you divide the fund or change the name on the account, it may be construed as a sale and repurchase by the fund administrator. This can inadvertently trigger gain or loss. Once the fund issues its tax statement for the year, it is very difficult, if not impossible, to have the transaction reversed. If there is any indication that there might be a tax impact from changing the name on any particular fund, you should consult with me and your CPA before proceeding.
If you have life insurance that you are both the insured and owner of, you normally only need change the beneficiary to the trust. If you are not both the owner and the insured, you need to consult with us before proceeding.
If your trust is not properly funded prior to death or permanent disability, then your estate may needlessly go through probate, or be subject to a probate court proceeding, in order to transfer the assets to your trust and then to the ultimate beneficiaries. After your trust has been funded, or simultaneously with funding your trust, it is suggested that you consult with us, so that we can review what you are doing or what you have done.
If you have a Durable General Power of Attorney, this can often be used to fund a trust in the event of your disability (but not death). However, it is best to take care of funding your trust prior to becoming disabled, so that you do not have to rely upon your Durable General Power of Attorney, which is considered a backup and only a “second best” solution.
If you need our help in funding your trust, please let us know. We are here to help, if and when needed.