By Lane V. Erickson, Idaho Estate Planning Attorney
As an Idaho estate planning lawyer, I regularly have clients bring me an estate plan they created decades before, that they want me to look over for them. Whenever a trust is included, I have a discussion with them to find out if the trust is valid. I do this because most of the time, these clients don’t know whether their trust was ever funded.
My discussion includes comparing their trust to a pie. I tell my clients that the documents are like a pie crust that has been made and is ready to have the pie filling put in it. However, if no pie filling is ever put into the crust, then you don’t really have a pie. Rather you only have a pie crust. The same is true of a trust. If the only thing that was ever done was the documents, and nothing more, then a trust doesn’t exist at all. There is only an empty pie crust.
I go through this discussion because my clients often do not know if the attorney that helped them all those years ago, did anything more for them. This is especially true if the trust itself has an attached schedule that lists all of the property that the client wanted to have placed into the trust. It’s important to understand that a schedule or list at the end of a trust, usually doesn’t actually put any pie filling in the pie. Rather, it simply describes the assets my client wants to put into the trust. Without some additional action that actually transfers the assets into the trust, we still only have an empty pie crust.
I then go through the various types of property that are either listed on the schedule to the trust and I go through the types of property that are often included in a trust so we can determine whether the pie had any filling put into it by the previous attorney. (It’s interesting to me that despite the fact that my clients may have paid several thousands of dollars, in most cases nothing more was done to transfer property into the trust by the previous attorney.) The categories that I usually go through with my clients include the following:
Homes, bare ground, vacation properties, farm ground, mineral rights, commercial buildings and so forth all fit into the category of real property. Additionally, anything that is “affixed” to the land is also considered real property. This would normally include things such as out buildings, wells, irrigation equipment, crops, canals, ponds, mines and roads.
Ownership of real property in Idaho is evidenced by holding “title” which simply means there is a deed of some sort that has the name of the owner(s) listed on it. In order for this deed to perfect the transfer of title to the real property described on it, the deed must be recorded. This means the deed is taken to the County Recorder’s Office in the county where the real property is located, and it is officially stamped with a date and a unique recording number. This information (the date, recording number, description of the property and the name(s) of the owner(s)) is then entered into the County Recorder Office’s database and/or records so that anyone can look it up and know who the current owner of the real property is.
To transfer real property into a trust, a deed must be created by the current owner who is listed on the deed as the Grantor. The owner then names both the Trustee and the Trust as the Grantee. The owner then lists the Trustee’s address and provides the legal description of the real property. When this deed is recorded, the real property described in the deed has now been properly transferred or placed into the trust. From a legal view, the trust now “owns” this real property.
As stated above, what often happens is a client will come in to have me review the trust that was created some time ago, and I discover that the real estate listed on the Schedule included at the end of the trust was never actually deeded to the trust. Many times, this discovery is made after one of the spouses passes away. In this circumstance, I have to inform my client that a probate will still need to be completed for their deceased spouse, even though the trust was created, because the real property (which is usually the family home) was never transferred into the trust. The result is the client paid for a trust, thinking they had a complete estate plan that would help them avoid probate, but the trust did nothing for them.
In most instances transferring personal property into a trust is easier than dealing with real property. However, this is not always true. For example, vehicles or other “titled” personal property such as some forms of machinery and/or equipment are treated like real property. There must be a formal transfer of title to the trust before the trust actually owns these kinds of personal property.
Most other types of personal property are easier to deal with. Personal property, other than the “titled” kind can be transferred into a trust by signing a document that states that ownership has been transferred. This could be a Bill of Sale or a Personal Property Transfer document. This could also be completed through the Schedule of Property that is often attached at the end of a trust.
The key to transferring personal property into a trust is determining whether it is “titled” or not. As is set forth above, if it is “titled” then an additional step must be completed. “Titled” property isn’t transferred into the trust simply by listing it on a document. However, most other kinds of personal property can be transferred into a trust through a simple document.
Bank Accounts and Investment Accounts
Bank accounts and investment accounts are a unique kind of personal property. In most instances, these accounts are associated with the name and social security number of the individual(s) who own them. If a person wants to transfer their accounts into a revocable trust, they can often still use their own social security number on the account. The only thing that needs to be changed is the name of the trust as well as adding the name of the trustee who is over the trust.
However, when the trust is not revocable, or when it is a supplemental needs trust, or a trust dealing with a succession plan for a business, things are usually different. In these cases, the trust itself usually needs its own ID number, which is an Employer Identification Number (EIN) that must be obtained from the IRS. (Don’t let the name confuse you because obtaining an EIN is still necessary even when there will be no employees in the trust.)
When you want to transfer your accounts into a trust other than a simple revocable trust, the bank or financial institution is creating a new account. The EIN is used for this purpose. The name of the trustee and of the trust are also included to open the account. After this is completed, the money is taken out of your personal account and is then placed into the new account for the trust.
In addition to real property, personal property and accounts, some people are also interested in transferring their retirement accounts into their trust. I usually discourage a person from doing this kind of transfer while they are alive. The reason for this is that there are no real immediate benefits and if done incorrectly, it could be an expensive mistake.
In most instances, transferring ownership in a retirement account to a trust is a taxable event where the total amount from the account that is transferred is classified as income in the year the transfer occurs. To avoid this taxable transfer, I usually encourage individuals to keep their retirement accounts in their own name. I also encourage clients to utilize the beneficiary designation form to list their spouse or children as the primary and/or contingent beneficiaries who will receive their retirement accounts if they were to die. The reason for this is that there are options and strategies for roll-overs and transfers that can be completed that won’t trigger taxes, or that will reduce applicable taxes.
It’s true that there may be an instance where a client would name a trust as the beneficiary rather than their spouse or children. This may be true if the spouse is disabled or if the children are minors. However, again, this is not an immediate transfer, so it is not an immediate taxable event. Rather, this is a transfer that will only occur upon the death of the client, which is when any taxes that are owed will be paid.
ENLIST AN IDAHO ESTATE PLANNING ATTORNEY TO HELP YOU
If you have any questions about your estate or how to simplify your plans for your family and loved ones, we can help. Call us toll free at 877-232-6101 or 208-232-6101 for a free consultation with Lane Erickson and the Racine Olson team of Estate Planning attorneys in Idaho. You can also email Lane Erickson directly at firstname.lastname@example.org. We will answer your questions and will help you solve your Idaho Estate Planning problems. I have helped numerous clients create their own customized estate plans and I’m confident that I can help you too.