WHAT YOU NEED TO KNOW ABOUT BEING YOUR OWN TRUSTEE
To assist you regarding your duties and responsibilities in the administration of your Revocable Trust Agreement, we have compiled some information covering the areas most asked about. The information is general in nature, and if you have more specific questions, do not hesitate to contact us.
General Information About Living Trust
A trust is a transfer of property from one party, the Grantor, to a second party, the Trustee. The Trustee holds the trust property for the benefit of the Grantor or whomever the Grantor directs. often times, you will choose initially to act as your own trustee. A living trust is a separate document from your Will. Under a living trust, you may receive all of the income as well as the right to use the principal of the trust as you wish. The trust directs who will receive the assets when you die. Though this type of trust has no estate or income tax advantage for you, it provides a means to manage your assets if you were to become incapacitated. You do this by designating a successor Trustee who will pay bills for you and administer the trust property if you are unable to do so.
Q. Must Assets be Transferred or Re-titled?
A. The Trust will not be funded, i.e., will not own anything, until assets are properly transferred and/or re-registered as outlined below. ANY ASSET WHICH YOU OWN IN YOUR INDIVIDUAL NAME AND WHICH HAS NOT BEEN TRANSFERRED TO YOUR TRUST PRIOR TO YOUR DEATH WILL BE A PART OF YOUR PROBATE ESTATE AT THE TIME OF YOUR DEATH.
We prefer that you handle the funding of your Trust, but if you so desire we can assist you with this for an additional charge.
a. Transferee. The owner of any asset being transferred to your Trust should be indicated as follows:
“(your name), as Trustee of (your name) Declaration of Trust dated (the date on which you executed the Trust).”
b. Real Property. In the event that you desire to transfer any real property that you own to your Trust, a deed will have to be prepared, executed and recorded. There is special wording that should be used on the Deed to the Trustee which, if used, may avoid having to record the Trust Agreement should you decide to sell or refinance your real property.
A transfer of your residence to your Trust during your lifetime may not avoid the necessity of a court proceeding at your death to clear the title to that property. A number of title insurance companies have taken the position that because there are restrictions on who you can devise your “homestead” to at your death in certain circumstances (i.e., if you are survived by a spouse or minor child), the lifetime conveyance of the property to a Revocable Trust Agreement is not sufficient to give the successor Trustee clear title after the Grantor’s death. If you do transfer your residence to your Trust during your lifetime, you should reserve a Life Estate so that you will continue to be entitled to the homestead property tax exemption.
c. Bearer Bonds. In the event that you intend that any bearer bonds that you own be held as trust assets, your intention should be indicated by listing the bearer bonds on the Schedule “A” to your Trust since there is no way in which to transfer bearer bonds other than by listing them on the Schedule “A”.
d. Securities. All reinvestment accounts, stocks, bonds and mutual funds need to be re-titled as indicated above in subparagraph 1.a. Your broker can assist you with the stock transfers, or you can handle it yourself directly through the transfer agent, or we can handle the security transfers for you.
e. Bank Accounts. You will need to go I into the various financial institutions where you have accounts to have the accounts re-titled as indicated in subparagraph 1.a. Normally there is no penalty for re-titling certificates of deposit into the name of a Revocable Trust, but you should make sure of this before you do at a date prior to maturity. Also, some financial institutions require that if a Certificate of Deposit is titled in two names, that the other joint owner consent to the re-titling of the Certificate of Deposit into the name of your Trust.
f. Brokerage Accounts.
Individually owned brokerage accounts should be transferred into your Revocable Trust, and titled as indicated in subparagraph 1.a. Your broker can assist you with this asset transfer.
g. Trust Abstracts. Generally, a transfer agent will require a copy of the Trust before it will transfer stocks or other securities to your Trust. You may want to provide a Trust Abstract (copy of your Trust will all provisions shown except the dispositive provisions, which has been certified on the last page), rather than the full Trust Agreement to the transfer agent, to insure privacy regarding your dispositive intentions.
Upon request, we will be glad to furnish you with Abstracts of your Trust. The cost to you for the Trust Abstract will Be $10.00 per abstract.
h. Schedule “A”. Your Schedule “A” is for recording the initial assets transferred to your Trust; it is not amended as assets change. You should maintain a record of all assets in the Trust in a small ledger or notebook.
i. After-acquired Assets. All newly acquired assets or reinvestments of proceeds of trust assets that are sold or redeemed should be registered as set out in subparagraph 1.a., above.
Q. What About My Personal Checking Account?
A. We suggest that you keep your “operating account” (the account that you pay your bills from, buy your groceries with, etc.) in your individual name and not re-titled it into the name of your Trust, so that you can afford yourself continuing privacy regarding your estate plan. You should keep this account small, so that a Summary Administration probate proceeding can be used to transfer title to that asset to your Trust at your death.
If you choose to maintain a trust checking account, all interest, dividends or other trust asset income should be deposited to that account and all proceeds from the sale of trust assets should be deposited to it. As Trustee, you can then write checks or make withdraws from the Trust’s bank account to yourself, individually, or to creditors for payment of your bills.
Tax Information
a. Tax Identification Number. If you are serving as the sole Trustee or Co-Trustee of your own Trust, there is no need to apply for a separate tax identification number, you may use your own social security as the tax identification number for the Trust.
b. Tax Returns. There is no need to prepare a separate tax return for the Trust while you are living and serving as Trustee or Co-Trustee due to the fact that all trust income is taxable to you as grantor of a Revocable Trust Agreement. All trust income should be reported on the appropriate schedule on your individual income tax return (Form 1040) for each year.
Q. What Happens Upon Death or Incapacity?
A. At the time of your death, or in the event you become incapacitated at some time during your lifetime, the person or persons that you have named as Successor Trustees will assume responsibility for the administration of your Trust. To assist the Successor Trustee, below we have outlined some of the Successor Trustee's duties and responsibilities.
a. Tax Identification Number. The Successor Trustee will need to obtain an Employer Identification Number from the U.S. Treasury Department for the Trust, as your social security number can no longer be used as the tax identification number for the Trust when you are no longer serving as Trustee or Co-Trustee. Form SS-4 is used for making application for a tax identification number for the Trust.
b. Tax Returns. Once you are no loner serving as Trustee or Co-Trustee, the trust becomes a separate tax entity, and the Successor Trustee is required to file a Fiduciary Income Tax return (Form 1041) each year for the Trust. The Successor Trustee will also need to file Intangible Tax returns and possibly Gift and Generation-skipping Transfer Tax returns.
c. Inventory of Trust Assets. The Successor Trustee should immediately take possession of all trust assets and should prepare a detailed inventory of the assets of the Trust at the time that the Successor Trustee takes over the administration of the Trust.
d. Notification of Payors. The Successor Trustee should notify all dividend disbursing agents, banks, lessees, and others who will be making payments of interest, dividends, rent or other income to the Trust that the Successor Trustee has assumed the duties of administration of the trust and should provided all payors the Trust’s new tax identification number.
e. Investment Review. To determine if different investments will be required due to possibly different needs of the Grantor/life beneficiary in the event of an incapacity, the Successor Trustee should have an investment review done by a qualified person. Also, in light of basis changes at the death of the Grantor, an investment should be done as soon as possible after the death of the Grantor.
f. Accounting System. The Successor Trustee should establish an accounting system to properly reflect receipts and disbursements from the Trust.
g. Providing for Security and Protection of Assets. The Successor Trustee should examine all homeowners and other liability insurance coverage, and should notify all insurers of their assumption of the duties of Trustee of the Trust, to insure that they are added as additional insureds on all policies. A determination should be made as to whether any additional insurance need to be purchased or whether limits need to be increased.
Q. Are There any Additional Responsibilities at Death?
A. As well as the responsibilities described above, at your death the Successor Trustees will have the following responsibilities:
a. Notification of Beneficiaries. All beneficiaries of the Trust should be notified of the Grantor’s death and what matters will have to be concluded prior to termination of the Trust and distribution of the trust assets.
b. Payment of Claims and Expenses. All claims, debts, and last illness expenses of the Grantor should be reviewed carefully by the Successor Trustees and a determination made as to their validity, prior to the payment of any of such claim. It is recommended that if there will be no probate administration of your estate, that the Trustees publish a Notice to Creditors.
c. Asset Appraisals. All real property which is an asset of the Trust should be appraised in order to establish the new basis for all such assets. Also, valuable personal property, jewelry, antiques, are work and collections should be appraised at your death to establish basis for the beneficiaries who will be receiving these assets.
d. Evaluation of Trust Assets. A determination should be made as to the fair market value of all other assets in the Trust at the date of your death in order to establish the basis of these assets in the hands of the beneficiaries who will receive them.
e. Federal Estate Tax Return. Shortly after your death, the Successor Trustee should determine if a federal estate tax return will be required to be filed, and obtain the assistance of a competent professional to prepare the return.
f. Funding of Continuing Trusts. The Successor Trustees will be responsible for funding any Trusts which are to continue after your death, with appropriate assets after consultation with tax advisors.
g. Distribution of Assets. The Successor Trustees will be responsible for distribution the assets of your Trust at the time of termination of the Trust, pursuant to the terms of the Trust Agreement. This will require conveying real property by means of deeds, re-registering securities, and re-titling bank accounts. Termination of the Trust and distribution of the assets should be coordinated with the payment of all costs, debts, expenses and death taxes that may be payable as a result of your death, as the Trustee could become personally liable if the Successor Trustee distributes assets prior to satisfying all such debts, expenses and taxes.
As indicated in Section 1, above, if assets are owned in your individual name at the time of your death, a probate administration to transfer title to the assets either to designated the beneficiaries or to the Trust will be required. Also, a determination of homestead proceeding, as described in sub-paragraph 1.b., above, may also be necessary to clear title to your homestead real property at your death.
Q. How Can Your Office Assist the Successor Trustees?
A. If desired by your Successor Trustees, we can assist with the following matters:
a. Inventorying and securing values and appraisals for trust assets.
b. Assisting with bookkeeping and record keeping through use of our legal assistants. We also have access to a computerized accounting and check writing system.
c. Assist with bill paying, by setting up a tickler system for payment of monthly bills and keeping the check book, although the Successor Trustee must sign all checks.
d. Preparation of the Federal Estate Tax return (Form 706), Federal Gift Tax returns (Form 709), and Intangible Tax returns.
e. We can gather the necessary information, if we are handling the bookkeeping and record keeping, that will be required by the Trust’s accountant to prepare your personal income tax returns (Form 1040) and the Fiduciary Income Tax returns (Form 1041) for the Successor Trustees.
f. We have accumulated information regarding support services in the community that may be of use to the Successor Trustee in making necessary care and assistance arrangements for you, in the event you are incapacitated.
This newsletter is designed to provide informative material of interest to our readers. Readers should not take or omit any action based solely on the basis of this newsletter as isolated circumstances may require action different from that described in this general orientation document. Appropriate legal advice or other expert assistance should be sought from a competent professional.