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Creating Your Trust: Dealing With Specific Assets

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DECEMBER 28, 2015 VOLUME 22 NUMBER 48

When our clients establish revocable living trusts, we help them transfer assets to the trust’s name. That’s not unique — most law firms help clients through the process. This is often referred to as “funding” the trust, and it can be more complicated than it seems like it might be.

Some asset transfers are relatively straightforward. A deed can transfer your home and any other Arizona real estate into the trust. A trip to the bank and another to your stockbroker can complete those transfers (we can’t make those changes directly from our office, but can give you help and directions). There are a number of assets, though, that will often require some special considerations. Depending on your circumstances, those might include:

IRAs and other retirement accounts. These are often the most challenging. Depending on your family situation and the terms of your trust, it might be important to name the trust as a beneficiary (or maybe an alternate beneficiary) on your retirement accounts. For the next person in similar circumstances, it might be a mistake to name the trust as beneficiary. There are specific rules that have to be addressed, and this one requires some individualized attention.

Out of state real estate. This is often the most important item to transfer into the trust’s name and, unfortunately, we usually can’t help you with that transfer. We aren’t familiar with deed practices in other states, and aren’t qualified to practice law in those states, either. Unfortunately, your (or we) will need to make arrangements with a law firm in the other state to complete the transfer. We’ll take care of the details, but it will add another cost to the establishment of the trust.

Your home. Normally we want your home transferred into the trust’s name, but not in every circumstance. For people with special property tax breaks, for instance, it might be important to keep the home in the owner’s individual name. We might be talking about creating a “beneficiary deed,” an option Arizona permits for transfer of real estate to another person — or to a trust — automatically on your death.

Life insurance. Often we counsel that you should name the trust as beneficiary on your life insurance policies, but not in every instance. One difference: if the life insurance goes straight to beneficiaries, it clearly is not liable to claims made against your estate or trust. If you name your trust, or your estate, as beneficiary, you could be subjecting the life insurance to those claims. This is normally not a big issue, but we do need to think about it for a few moments before naming beneficiaries.

Vehicles. We usually do not push clients to transfer their cars into the trust, partly because the difficulty and cost are greater for this transfer than for many others. Besides, under Arizona law we can collect up to $75,000 of your assets even if they are outside the trust at your death, and few clients have vehicles worth that much. We do suggest that you think about the trust next time you buy a car, and ask about titling it to the trust. Make sure your insurance agent knows about the title to the car, and that your insurance is not affected (it shouldn’t be, but double check). Arizona permits a “transfer on death” designation for car titles, and sometimes we like to employ that approach to ensuring that the vehicle transfer is not a problem when you die.

Some vehicles are more valuable, or more problematic for other reasons. We have transferred airplanes, recreational vehicles and commercial trucks to trusts; the importance of accomplishing the transfer is clearer when the value of the vehicle is larger.

Let us also mention another problem that comes up frequently with vehicles. Suppose you intend to leave your house and all its contents to one beneficiary. Is the car parked in the garage included? You get to decide, but simply saying “house and its contents” might leave a significant asset unresolved.

Annuities. The choice of owner and beneficiary for annuities will vary depending on income tax issues, purpose of the annuity and its change in value over time. As with retirement accounts, it can be hard to generalize about annuities. We’ll need to discuss this asset class.

Operating bank account. What about the bank account you use for direct deposit of your Social Security and retirement payments? Should it be titled to the trust, or kept in your individual name? We generally prefer that you transfer even that account to the trust’s name, but that will usually mean a new account, new checks (they can still carry your individual name) and new debit cards. Another option: keep one small operating account outside the trust, but name the trust as “payable on death” beneficiary.

Clients frequently establish a living trust, transfer all of their assets to the trust, then worry about making sure there’s money available for emergencies “in case something happens” (by that they usually mean “when I die,” but that’s hard to say). There’s no need for an emergency account — the trust authority automatically transfers to your successor trustee on death, and the delay in getting access to the accounts will normally be very short.

Are you worried about having money immediately available? You might think about naming the daughter who will be your successor trustee as co-trustee instead. Give her immediate authority to manage trust assets, and she won’t have to prove your death in order to take over responsibility that she already has. Besides, creating even a small account with her as a joint owner invites family disputes about whether that account was supposed to be inside the trust or separate.

Our takeaway: “funding” your trust is more complicated than it looks like it might be. Talk to us about the best way to handle your various asset types. We can help figure this out.

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Robert B. Fleming

Attorney

Robert Fleming is a Fellow of both the American College of Trust and Estate Counsel and the National Academy of Elder Law Attorneys. He has been certified as a Specialist in Estate and Trust Law by the State Bar of Arizona‘s Board of Legal Specialization, and he is also a Certified Elder Law Attorney by the National Elder Law Foundation. Robert has a long history of involvement in local, state and national organizations. He is most proud of his instrumental involvement in the Special Needs Alliance, the premier national organization for lawyers dealing with special needs trusts and planning.

Robert has two adult children, two young grandchildren and a wife of over fifty years. He is devoted to all of them. He is also very fond of Rosalind Franklin (his office companion corgi), and his homebound cat Muninn. He just likes people, their pets and their stories.

Elizabeth N.R. Friman

Attorney

Elizabeth Noble Rollings Friman is a principal and licensed fiduciary at Fleming & Curti, PLC. Elizabeth enjoys estate planning and helping families navigate trust and probate administrations. She is passionate about the fiduciary work that she performs as a trustee, personal representative, guardian, and conservator. Elizabeth works with CPAs, financial professionals, case managers, and medical providers to tailor solutions to complex family challenges. Elizabeth is often called upon to serve as a neutral party so that families can avoid protracted legal conflict. Elizabeth relies on the expertise of her team at Fleming & Curti, and as the Firm approaches its third decade, she is proud of the culture of care and consideration that the Firm embodies. Finding workable solutions to sensitive and complex family challenges is something that Elizabeth and the Fleming & Curti team do well.

Amy F. Matheson

Attorney

Amy Farrell Matheson has worked as an attorney at Fleming & Curti since 2006. A member of the Southern Arizona Estate Planning Council, she is primarily responsible for estate planning and probate matters.

Amy graduated from Wellesley College with a double major in political science and English. She is an honors graduate of Suffolk University Law School and has been admitted to practice in Arizona, Massachusetts, New York, and the District of Columbia.

Prior to joining Fleming & Curti, Amy worked for American Public Television in Boston, and with the international trade group at White & Case, LLP, in Washington, D.C.

Amy’s husband, Tom, is an astronomer at NOIRLab and the Head of Time Domain Services, whose main project is ANTARES. Sadly, this does not involve actual time travel. Amy’s twin daughters are high school students; Finn, her Irish Red and White Setter, remains a puppy at heart.

Famous people's wills

Matthew M. Mansour

Attorney

Matthew is a law clerk who recently earned his law degree from the University of Arizona James E. Rogers College of Law. His undergraduate degree is in psychology from the University of California, Santa Barbara. Matthew has had a passion for advocacy in the Tucson community since his time as a law student representative in the Workers’ Rights Clinic. He also has worked in both the Pima County Attorney’s Office and the Pima County Public Defender’s Office. He enjoys playing basketball, caring for his cat, and listening to audiobooks narrated by the authors.