In the three prior posts, we provided an overview of the background and rationale for using and funding your Revocable Living Trust. How specifically do you do so?
Of course clients and facts differ, but let’s assume Ozzie and Harriet Client have been married many years and they desire to leave assets to each other and then to their children upon their deaths. They are worried about probate but not estate taxes.
Here is a typical scenario for Ozzie and Harriet Client:
Revocable Trusts – Common Questions:
(1) What are the tax identification numbers for the Trusts? The Trusts do not have a separate tax identification number – you use your own Social Security Number for each respective Trust. Because each Trust uses your Social Security Number, you do not file a Trust income tax return – the income is reported on your 1040.
(2) What are the names of the Trusts? The names of the Trusts, for purposes of changing title and beneficiary designations, are the following:
Ozzie s Trust:
Ozzie and Harriet Client, Trustees, or their successors, of the Ozzie Client Revocable Living Trust, created U/A/D ________________________.”
Harriet’ s Trust:
“Harriet and Ozzie Client, Trustees, or their successors, of the Harriet Client Revocable Living Trust, created U/A/D _________________________.”
Revocable Trusts – Typical Funding Recommendations:
Retirement Plan Assets (e.g., IRA, 401k)-Name your spouse as the primary beneficiary and your own Revocable Trust as the secondary beneficiary.
Life Insurance-Name your spouse as the primary beneficiary of any life insurance policies on your life and your own Revocable Trust as the secondary beneficiary.
Liquid Assets-For liquid assets that do not have beneficiary designations you have a couple of options. One option is that, if assets are jointly titled with a survivorship right, you may decide to leave them jointly titled because there is no probate at the first death. However, at the second or simultaneous death, there would be probate. Thus, you may choose to transfer those assets to one Trust or the other or keep the accounts jointly titled and transfer them “50% tenant in common” interest into each of your Revocable Trusts.
Real Estate-You may transfer the deed to your house “50% tenant in common” interest into each of your Revocable Trusts. Alternatively, because in Virginia recording the Will acts as a deed, thereby allowing you to transfer the house without probate even at the second or simultaneous death, you may leave the house titled tenants by the entirety.
If you have an LLC or stock in a closely held company, you may want to list the owner’s trust as the beneficiary, using the Trust language above. It would read: “Payable on death transfer by beneficiary designation under Virginia Code Section 64.2-620, [Trust], beneficiary of my 100 ownership interest upon my death.” It is then merely signed and dated.
Keep in mind that assets exceeding $50,000 trigger probate, so when you purchase your next car or any other assets, you should also move them into the Trusts. (An exception may be a joint checking account with a relatively small amount.) Already your tangible personal property is in your Trust, “50% tenant in common” by the attached Schedule A. We also recommend that all of the original documents that you received should be kept in a safe place, together with your other important papers.