Speakers: Maritess Bott and Tami (Tamaira) Suwanski
Maritess:
Funding is basically just transferring assets into a trust. So most people are like, what do you mean we have to transfer assets and what is this trust thing? So when people come to us, a lot of them create what is called a living trust—a revocable living trust. And that trust, I call it kind of this box. And now we have to fill the assets currently that you own into this trust or into this box—and that’s what funding is all about. Because we want your trust to own your assets while you’re alive, if you become disabled, and then certainly upon death. So this box kind of is ongoing. So funding is really, really important. So it’s creating the trust but then also transferring assets into the trust. And so I want to introduce Tami. She’s in our office, she’s our funding paralegal, and she helps a lot of our clients with the funding of their trust. So that’s why I wanted to introduce her. She’s going to share a little bit of her experience with funding in general.
Tami:
Yes, yes, yes, yes. So I have been doing this for over 15 years in a banking capacity, so I’ve helped clients move their trust assets into their banking accounts specifically. And I would also incorporate it into their financial planning. So this is something that’s really important to me because I’ve seen both sides of what happens if the trust is not funded properly. So yeah, so that’s me.
Maritess:
What we’re going to do today is just kind of go back and forth and talk about the different types of assets that are funding the trust, all the different types. So, the first thing I’ll kind of introduce is real estate. Almost everyone is like—that’s one of their biggest assets that they have. And so this is considered your home, your residence, as well as any, like you might have a second home, you might even have a timeshare—all of that have deeds that actually show title to that asset.
For your residence, we always take it upon us to just go ahead and retrieve whatever your last deeded, recorded deed from the county. And then we’ll prepare a deed that will say it goes from John Doe—now it’s going to be titled to the John Doe Trust. You end up signing that in the actual final signing that you have with us. So you’ll sign your trust but then in that same day, you’re also going to sign the deed that transfers this house into the trust. And then with that, once you have it signed, we’ll go ahead and file it with the county, with the city as well because you have villages and cities that require what is called an exempt stamp. So we want to get that, then go ahead and file it with the county. Then when you get your tax bill, it’s not going to say John Doe anymore. It might say the Doe Living Trust instead of John Doe. So the only change that you’ll see is maybe your tax bill.
Sometimes a common question is, will the mortgage company, you know, call the loan or change it—will that be affected? Not at all. Your trust actually is tied to your Social Security number so your loan is actually the same, it stays the same. You don’t have to worry about changing that. Your house is just now owned by the trust. We’ll do the same exact thing for any rental properties that you own in Illinois. Anything in Illinois, we’ll take care of.
Outside of Illinois, we always work with other lawyers outside of, you know, other states. We’re part of a large organization of estate planning attorneys so we usually have a colleague or two in your states. So we do a lot of changes in Florida, Michigan, Arizona, California—all sorts of states—and we help you transfer as well through the law firm that we work with. So it makes it easier. We’ll take care of the real estate as number one.
Tami:
And then of course banking accounts are important. That’s anything that has to do with a checking account, a savings, your money market accounts, CDs. I’m guessing right now they’re either in a joint tenancy with another person or they’re just in your name. When you put the trust in place, you have a couple of options. You can either retitle those accounts into the name of your trust or you can name your trust as beneficiary, or what they call payable on death. And what that means is the owner of the account would then become the trust and if you choose not to do that—when you pass away, your trust naturally becomes owner of the funds. And then your successor trustee knows what to do from there so it makes it pretty easy. Every banking institution is different, they all have their own sets of procedures and policies, so you have to follow whatever those are in place for each of the financial institutions. But our office is here to help you throughout the entire process because it is a lengthy process. It’s not smooth but it must be done in order to fund your trust properly.
Maritess:
And some banks are easier to work with than others, so some banks know that your living trust has the same Social Security number—so it’s just a matter of changing the title and the ownership. Other banks make you close that account down and then open up a new account in your trust, which can be more of a hassle. So some of my clients are like, no, no, I have my Social Security deposit there, I have all these automatic payments coming out of there, so they don’t want to necessarily close the account down. So we’ll work with whatever bank that you work with and try to figure out an easy solution because it’s not always easy.
The third kind of big account that most people have is retirement accounts. Retirement accounts come in many different forms. You’ve got your typical 401(k) at work, then you have 403(b)s, then you have IRAs, you have different accounts that are more for teachers or for different kinds of unions. They are usually tax-deferred accounts and what we tell people is that it’s not going to be transferred into the trust because you have to own that individually—you’re just going to change the beneficiaries. So, if you’re married, your first beneficiary typically is still your spouse. So leave that alone, nothing changes there. It’s only when you create the trust we’ll ask you to change your contingent beneficiary to be the trust now. It will no longer be your five-year-old daughter, it will no longer be your brother or your father, it’ll be your trust. Because your trust will now tell us, who does it go to upon the death of both of you, or upon the death of one of you, or if you’re just single. People ask me all the time too, a common question is, well wait a second, I can’t put the trust as beneficiary—they’ve got to pay tax immediately and all this. That’s not true.
A trust can have what is called see-through provisions in the trust or conduit provisions that allow us to take each beneficiary and use their choice right to inherit it as an inherited IRA and stretch it for as long as the law allows. Right now the law allows you to stretch it for 10 years and not pay tax until the 10th year, so each individual has that choice even if the trust is the beneficiary. So this is the big disconnect. A lot of financial advisers will say, don’t put the trust on there as a beneficiary. You can, and that’s the difference—making sure your trust actually has these provisions. And why this is important is because your trust gives you more flexibility. When you add a beneficiary and you say Jane Doe gets my money upon my death, what if Jane Doe is dead? What if you both were in the same car accident? Now it goes into probate. Now we have to figure out who gets this money and it could go randomly to relatives you don’t even know if you don’t have beneficiary after beneficiary. Because life happens. We always assume older people will die first and then the younger people will die second. That’s not always the case.
We also think this person’s super healthy, nothing’s going to happen to them. We don’t know, that’s not the case. So because we don’t have that crystal ball, I prefer having a trust because the trust will have probably four, five, six layers of what-if scenarios in case one of those persons is not there. So that’s for insurance.
Tami:
Life insurance. Life insurance is another thing people kind of forget about. What we recommend is of course if you’re married, your spouse is the primary beneficiary. And then your trust would be the second or contingent beneficiary—meaning if you pass away. That way if your spouse goes with you, the trust kicks into gear. It receives all those funds, it doesn’t just evaporate. Super important but something that everyone kind of forgets about. If you are not married, we recommend the trust as being the sole beneficiary. What happens with that is, you have taken a lot of time to put this trust into place and you’ve been very selective about what percentage goes where and you want to make sure that happens with your legacy. So that’s why it’s so important that you take the time to make sure that these beneficiaries are changed accordingly.
Maritess:
Life insurance is one of those things where you just assume, oh yeah, of course it’s just going to go directly to that person. But again, it’s the same thing with retirement accounts. If that person’s not alive now, where does it go? It goes through probate. Again, if you have the trust as the beneficiary, it’s much easier. And one little thing about life insurance—when I work with clients who are divorced, there’s almost always a provision in the divorce decree that says I have to keep this life insurance in place for my divorce decree, right? But sometimes that requirement is only until the kid turns 18 or the kid is finished with college. If that life insurance policy still exists and the kid is already past these stages, why should it go to your ex-husband or your ex-wife based on the beneficiary designation, right? Because as long as you fulfilled all your requirements of the divorce decree, that money shouldn’t automatically go to them if you’ve already fulfilled it and/or the kids have passed those ages. So that’s another thing about life insurance.
So next topic is just accounts that aren’t necessarily bank accounts and they’re not necessarily 401(k) or retirement accounts—it’s just your basic kind of investment account. A lot of people want to invest in Fidelity, Vanguard, UBS, all sorts of financial institutions, and they own mutual funds in that institution. These are nonqualified, meaning they’re not tax-deferred. You pay tax on all the income and interest and dividends that you receive. So I would suggest, typically it’s an account that can grow quite a bit, I would suggest retitling it into the trust. You could put a beneficiary of the trust as well, but since you’re already going through this process and doing the paperwork, I would suggest just retitling it to no longer be named John Doe. It’s going to be the John Doe Trust at the top of your statement so that it’s just easier for the family to get access to it immediately. Not like, oh my gosh, now it’s only in John Doe’s name—we’ve got to go to probate. The whole point is to avoid courts but then have your fiduciaries having access to it.
Tami:
Correct. Okay, the next one, kind of along the same lines, individual stocks and bonds. So there are still people that have paper stocks and paper bonds and it is a process to turn those from your title of ownership, whether it’s individual or joint, into the name of the trust. But it’s strongly, strongly recommended. We’re not saying that you have to turn it from paper into non-paper, but we’re saying take the time and energy to fund it properly, make sure that it’s retitled in your trust. It’s essential to do so because once the time comes when you do pass away, it can’t go backwards. You can’t put anything inside of a trust once the grantor passes away. So we want to make sure that’s taken care of before the time comes so that your legacy shines through after. And the only way to do that is to make sure that the title on those paper stocks and bonds are changed accordingly.
Maritess:
Next one is business interest. A lot of times people go into business, maybe with a friend, or they have something that they just do on the side. They have their house, they have their typical job, but then they also have a business on the side. That’s really important to also make sure it goes to your family. Those business interests have value, and somebody should get the value of that. So it’s something that we can help you with—it depends on how many partners you might have with your business. If you’re in business with your brother and there’s an LLC created, there’s usually an operating agreement that you both sign, hopefully, that says if one of you dies, then the other person has to buy each other out. That’s the ideal situation. A lot of times people don’t put it together or don’t have that. Then we want to always suggest having a buy-sell agreement, an operating agreement, so there’s always provisions for what if someone dies. Someone should get the value of those shares and you shouldn’t have to be partners with the spouse of your brother or sister-in-law. So it’s just easier to get your business interests aligned. It doesn’t mean you have to transfer it to your trust because it depends if you have this particular agreement. Otherwise, if you own it solely then yeah, let’s put it in your trust, let’s make sure it’s in there.
Tami:
Another area is personal property. Think jewelry, artwork, antique cars, guns. How do we make sure those are transferred to who we want them to go to? There’s something called a General Assignment that’s going to be established in your trust, so you will have the opportunity to make sure that Susie gets this piece of jewelry or Johnny gets this particular piece of artwork. You’ll have the opportunity to make sure that everything is designated in accordance to what you want.
Maritess:
Exactly. The last category is just miscellaneous vehicles. So we have cars. People typically have a car, but they also might have a boat and they might have an RV, and they might have a timeshare—that’s very common. I get a lot of people with their little timeshare papers and most of them will say, I don’t really want it, my kids don’t want it, and we want to get rid of it. But it does typically have a title, so these are things that are usually filed with the DMV, the Department of Motor Vehicles in that state. So, depending on the value of your cars. If you have cars that are just typical regular cars that depreciate the minute you drive off the lot, you could leave those alone. It’s not a big deal. If you want to put it in the trust name, great. If you’re buying a new car, great. But if you have old cars, I want you to transfer them. They’re usually under the $100,000 threshold and we don’t have to go through probate with them. However, when you have collectible cars, those can have value and they could actually increase in value. That’s a little bit different. If you tell me you have six collectible cars and they potentially could be worth over 100,000 together, I would change the title, which can be a pain. We have to work with the DMV, which is never fun, but we’ll help you through that. There’s a fee for the DMV but we’ll help you fill out the paperwork and get that in there.
Boats are another thing. I have lots of clients that have second homes in Florida, Michigan, Wisconsin, and they buy their boat in that state. So once again, we have to check with the DMV equivalent in that state to find out how to transfer that boat into the trust. It’s a hassle but we definitely want you to do it because as little as you think it might be, when you die, then it’s just more of a hassle for your family. So, really important to get those done.
But in conclusion, you can see it’s a lot, right? We always are very passionate about getting your trust done, that’s step one. But not only that, step two is just as important, if not more important, because this funding is so, so, so key. And that’s partly why we’re passionate about getting this part done, as well as the initial trust creation. So we always ask that you come and ask us questions whenever there’s something that comes up, and that’s really important. That’s the difference between, oh yeah, I’m just going to do my own will and trust, I’ll do it through the internet, but then you have no idea how to fund it. That’s why you hire a lawyer, why you want to go through with a professional. Any final thoughts, Tami?
Tami:
No, but I hope you got something out of it. We would love to hear from you and if you have any questions at all, please, please give us a call or send us an email. We’re happy to answer any questions you may have.
Maritess:
Thank you, thanks for watching our podcast. Have a good day. [Music]
Tami: Thank you!
