A trust is a separate legal entity from the individual(s) that created the trust. As such, it must be “funded” to be effective. In other words, the provisions of a trust only apply to those assets that the trust owns. In addition, property which an individual owns at his/her death generally must be probated. However, all of the property you place in your trust during your lifetime will avoid probate at your death. A trust may be funded by one or more of the following methods:
- Changing title. For assets that are “titled” (e.g., cars, real estate, bank accounts), you can sign the title over to the trust. In the case of a car or real estate, this is done in the same manner as one would sign title over in connection with the sale of the asset to a third-party (e.g., signing the back of the car title or signing a deed), but the grantee is the trust instead of a third-party. In the case of bank and brokerage accounts, this is done by filling out a form provided by the institution where the account is held. Another option for a bank or brokerage account is the beneficiary designation option discussed below.
- Assignment/Bill of Sale. For assets that are not “titled” (e.g., jewelry, miscellaneous personal property), you should sign an assignment or bill of sale to transfer title of the assets to your trust. Bass Law includes a description of some these assets on Exhibit “A” of your trust.
- Beneficiary designation. For assets that permit the designation of one or more pay-on- death beneficiaries (e.g., bank accounts, brokerage accounts, life insurance contracts), you can designate your trust as the pay-on-death beneficiary . In the case of life insurance contracts, this will result in the proceeds of the death benefit being paid to your trust upon the death of the insured. The benefit of designating your trust as the pay-on-death beneficiary is to centrally control the ultimate disposition of the assets via the trust (and any amendments thereto) without the need to update beneficiary designations for multiple accounts. For bank and brokerage accounts, the use of the beneficiary designation is an alternative to actually changing the title (i.e., ownership) of the account to the trust . This is largely a matter of personal preference. If the account is re-titled in the name of the trust, the trust name will appear on checks and account statements as the account owner. Alternatively, if the account is not re-titled, but the trust is designated as the pay-on-death beneficiary, the individuals that created the trust will continue to be listed on checks and statements as the account owner.
- Pour Over Will. Your Bass Law estate plan includes a Pour Over Will . A Pour Over Will simply states that all of the assets that flow through your probate estate will be distributed to your trust. Ideally, you will have properly funded your trust prior to your death and there will be no need to open a probate of your estate and no occasion to use your Pour Over Will. This document is a just a safeguard in the event you die owning an asset that would need to pass through the probate process so that any such asset will be controlled by the provisions of your trust.
- Tax ID Number. When taking steps to fund your trust, you may be asked for the trust’s Taxpayer Identification Number (TIN) or Federal Employer Identification Number (FEIN). A TIN/FEIN is optional for most revocable trusts as the trust will be a disregarded entity for tax purposes and a settlor of the trust can use the settlor’s Social Security Number as the TIN/FEIN for the trust.
What follows is an outline of additional steps you need to take to properly fund your trust. For any accounts held with third parties, you should contact the institution that maintains the account to inquire into their procedures; you should not rely exclusively on the provisions of Exhibit “A” to your trust to accomplish a transfer as some institutions may have specific transfer requirements.
BANK ACCOUNTS, CERTIFICATES OF DEPOSITS AND BROKERAGE ACCOUNTS.
If you want the terms of your trust to control the ultimate disposition of these assets, you will need to either re-title these accounts to the name of your trust or designate your trust as the pay-on-death beneficiary. You need to contact your bank and/or broker to accomplish this. They will likely want a copy of your Memorandum of Trust for their files. Keep in mind that if you name a joint owner of the account, they will have complete control of the account upon your death, to include the ability to change the pay-on-death beneficiary.
AUTOMOBILES, TRUCKS AND OTHER “TITLED” ASSETS.
If you want the terms of your trust to control the ultimate disposition of these assets, you need to take the “Certificates of Title” to a tag agent in order to change the title to the name of your trust. They will likely want a copy of your Memorandum of Trust for their files. Keep in mind that if you name a joint owner of the asset, they will have complete control of the asset upon your death. Oklahoma does not charge an excise tax on the transfer of an automobile to a revocable trust. Your car insurance agent should be notified of the transfer of title so that the Trustee can be added as an insured on your policy. Please note that the Trustee should not be substituted as the insured, but should only be added as an additional insured so that your coverage continues to apply to you individually, even though the vehicle is owned by a trust. Note that pursuant to 47 O.S. § 1110(A)(8), a tag agent is prohibited from transferring title of a vehicle that is subject to a lien held by a commercial lender until the lien is satisfied. The following guidance has been provided to tag agents: “If transferring into a trust without a lien release then the title must read (and) between the way the title reads currently and the trust. Example- If title reads John or Jane Doe and there is an active lien and they want to put it into the trust then the title will read John or Jane Doe and John Doe Revocable Living Trust.”
RETIREMENT PLANS (e.g., 401ks, IRAs).
Retirement plans are special tax-deferred vehicles and normally cannot be titled in the name of a trust, but must remain owned by the taxpayer that funded the plan. A trust can, however, be designated as a pay-on-death beneficiary of these plans. However, naming a trust as a beneficiary of a retirement plan can cause complications and result in tax inefficiencies for the beneficiaries in some situations (e.g., the beneficiaries are of significantly different ages). It may be preferable to leave these benefits outright to the intended beneficiaries unless there is a compelling reason to leave them in trust. Normally, even if the trust is designated as a beneficiary, it will be as a contingent beneficiary with the surviving spouse as the primary beneficiary. The advisability of designating your trust as the pay-on-death beneficiary of your retirement plan(s) is highly fact specific and should be discussed with your attorney.
LIFE INSURANCE POLICIES.
If you want the terms of your trust to control the ultimate disposition of the death benefit from a life insurance policy, you need to change the pay-on-death beneficiary designation. You will need to contact your insurance agent to obtain the forms to make this change.
If you have an interest in a privately-held corporation, limited liability company, limited partnership, general partnership or other entity and you want to be controlled by your trust, your ownership interest in the entity will need to be transferred to your trust. This is done by either (1) executing an assignment or bill of sale, or (2) placing a “transfer on death” designation on your unit or stock certificate pursuant to the Oklahoma Uniform TOD Security Registration Act. An effective transfer may or may not require the issuance of new or amended unit or stock certificates and may require the consent of the other owners of the entity. It may be necessary for your attorney to review the bylaws, operating agreements, or other governing documents of the entities in which you own an interest to property incorporate these interests into your estate plan.
ASSETS ACQUIRED LATER.
As you acquire assets or open additional accounts in the future, remember that if you want your trust to control the ultimate disposition of those assets you should take title to the new assets in the name of your trust or, in the case of certain types of assets, name your trust as the pay-on-death beneficiary. If you fail to do so, the assets may pass outside the provisions of your trust or it may be necessary to open a probate at your death in order to admit your Pour Over Will.
Download this document: Funding an Oklahoma Living Trust