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How to Fund Your Revocable Living Trust

Funding & Administration of Your Trust - Tim Barkley

How to Fund Your Revocable Living Trust In order to gain all of the benefits derived from your Revocable Living Trust, it is “funding ” Funding links your assets to your trust The primary purpose of  trustee of the revocable trust Funding a trust also sometimes refers to designating his or her

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ur Revocable Living Trust By Richard M.

Morgan & Loraine M.

DiSalvo This newsletter is the final ins...


How  to  Fund  Your  Revocable  Living  Trust  

   By  Richard  M.

 Morgan  &  Loraine  M.

 DiSalvo   This  newsletter  is  the  final  installment  of  our  three  part  series  on  Revocable  Living  Trusts  (“RLT”s).

 The  first   newsletter  in  this  series  was  “Should  I  Use  a  Will  or  a  Revocable  Living  Trust

?  Separating  Facts  From  Fiction,”   and  the  second  newsletter  in  this  series  was  “Do  You  Need  To  Fully  Fund  Your  Revocable  Living  Trust  During   Your  Life

?  Separating  Facts  From  Fiction.”  This  newsletter  is  for  those  who  answered  “yes”  to  the  first  two   questions:  now  that  you’ve  decided  to  use  an  RLT  in  your  estate  plan  and  you’ve  decided  you  want  to  fund  it,

  at  least  to  some  extent,

 this  newsletter  tells  you  how  to  fund  the  RLT.

  Funding  your  RLT  means  that  you  actually  transfer  assets  to  it,

 usually  by  changing  the  ownership  of  those   assets  to  the  Trustee  of  the  RLT.

 The  RLT  can  be  funded  either  during  your  lifetime  or  at  your  death.

 If  you   don’t  fund  the  RLT  during  your  lifetime,

 then  it  will  usually  be  funded  after  your  death,

 with  a  combination  of   (1)  assets  that  are  transferred  to  the  RLT  under  your  Will  and  (2)  assets  that  are  paid  directly  to  the  RLT  under   a  beneficiary  designation.

 If  assets  have  to  pass  to  the  RLT  under  your  Will,

 then  the  Will  will  have  to  be   admitted  to  probate  before  the  assets  can  be  distributed  to  the  RLT.

  Whether  you  actually  need  to  fund  your  RLT  during  your  lifetime  depends  on  what  you  are  trying  to   accomplish  by  using  it.

 This  topic  was  covered  in  the  previous  installments  in  our  RLT  series,

 so  we  won’t  go   into  it  again  in  depth  here.


 here  is  a  summary  of  some  common  situations  and  the  extent  to  which   funding  the  RLT  tends  to  be  needed  in  each:  

 then  you  may  not  fund   the  RLT  at  all  during  your  lifetime  unless  the  incapacity  actually  occurs

 then  you  should  fund  the  RLT  with   the  non-­‐Georgia  real  estate  before  you  die,

 but  you  may  not  need  to  fund  it  with  any  of  your  other  assets


 then  you  should  fund  the  RLT  as  fully  as  possible  during  your  lifetime.

  The  rest  of  this  newsletter  will  discuss  how  to  actually  transfer  assets  to  an  RLT.

    A)   Residence  and  Other  Real  Estate  (But  Not  Including  Any  Real  Estate  Owned  Through  a  Limited   Liability  Company  or  Other  Business  Entity).

    1)   You  need  to  execute  a  deed  in  order  to  transfer  real  estate  to  an  RLT.

 In  order  to  transfer   ownership  of  any  real  estate  that  you  own  in  Georgia,

 you  must  execute  a  legal  document  called   a  deed.

 The  deed  is  then  recorded  with  the  appropriate  government  agency  (in  Georgia,


would  be  the  Superior  Court  of  the  county  in  which  the  real  estate  is  located),

 to  make  the   change  of  ownership  part  of  the  public  record.

      In  Georgia,

 you  cannot  simply  name  an  RLT  as  the  new  owner  in  a  deed.


 the  deed  must   transfer  ownership  of  the  real  estate  to  the  Trustee  of  the  RLT,

 using  the  Trustee’s  actual  name,

  along  with  a  designation  stating  that  the  Trustee  is  receiving  the  property  as  Trustee  of  the  RLT.

  The  language  used  will  generally  follow  this  pattern:  (full  name  of  Trustee  as  stated  in  the  RLT),

  as  Trustee  or  successor  Trustee(s)  of  (full  name  of  the  RLT  as  stated  in  the  RLT)  U/A  dated  (date   the  RLT  was  signed).

 U/A  stands  for  “under  agreement.”  For  example,

 a  deed  could  transfer  real   estate  to:  “John  R.


 as  Trustee  or  successor  Trustee(s)  of  The  John  R.

 Smith  Revocable  Trust   U/A  dated  December  1,

 2014.”     If  the  RLT  has  multiple  Trustees,

 then  each  of  them  should  be  named,

 using  language  such  as   this:  (full  names  of  each  co-­‐Trustee  as  stated  in  the  RLT),

 as  Co-­‐Trustees  or  successor  Trustee(s)   of  (full  name  of  the  RLT  as  stated  in  the  RLT)  U/A  dated  (date  the  RLT  was  signed).

 For  example,

 a   deed  could  transfer  property  to  “John  R  Smith  and  Susan  M  Smith,

 as  Co-­‐Trustees  or  successor   Trustee(s)  of  The  John  R  Smith  Revocable  Trust  U/A  Dated  December  1,

 2014.”     If  you  want  to  transfer  a  parcel  of  real  estate  to  two  separate  RLTs,

 then  you  would  name  the   Trustees  of  each  RLT  as  shown  above.

 You  should  also  add  the  words  “as  tenants  in  common”  at   the  end  of  the  designation  of  the  second  Trustee.

 For  example,

 the  deed  could  transfer  real   estate  to:  “John  R  Smith,

 as  Trustee  or  successor  Trustee(s)  of  the  John  R  Smith  Revocable  Trust   U/A  Dated  December  1,

 2014  and  Susan  M  Smith,

 as  Trustee  or  successor  Trustee(s)  of  the  Susan   M  Smith  Revocable  Trust  U/A  Dated  December  1,


 as  tenants  in  common.”  Tenants  in   common  means  that  each  owner  owns  an  undivided  interest  in  the  property.

 If  no  specific  per-­‐ owner  percentage  is  stated,

 then  the  joint  owners  are  deemed  to  each  own  an  equal  share.

      Other  states  may  have  different  rules  regarding  how  a  trust  must  be  designated  in  a  deed,

 so  if   your  real  estate  is  located  outside  of  Georgia,

 be  sure  you  know  how  the  deed  should  read.

    Deeds  come  in  different  types,

 such  as  Quit  Claim  Deeds,

 Limited  Warranty  Deeds,

 and  Warranty   Deeds.

 In  general,

 you  should  use  either  a  Limited  Warranty  Deed  or  a  Warranty  Deed  to  make  a   transfer  to  your  RLT,

 and  not  a  Quit  Claim  Deed.

 This  is  because  using  a  Quit  Claim  deed  can   cause  you  to  lose  the  benefits  of  any  title  insurance  policy  that  may  exist  with  regard  to  the   property.

 Using  a  Limited  Warranty  Deed  or  Warranty  Deed  helps  ensure  that  your  title   insurance  protection  is  preserved.

      In  Georgia,

 when  a  deed  is  filed  with  the  Superior  Court,

 a  form  called  a  PT-­‐61  form  is  filed  along   with  it.

 The  PT-­‐61  form  updates  the  property  tax  records  to  show  the  new  owner  of  the  property,

and  shows  the  amount  of  any  real  estate  transfer  taxes  that  are  due  with  the  filed  deed.

 In   Georgia,

 a  deed  that  transfers  real  estate  from  a  living  owner  to  that  owner’s  RLT  is  generally   considered  a  deed  of  gift,

 and  no  real  estate  transfer  taxes  are  payable  with  it.


 you  do   need  to  pay  filing  and  recording  fees  to  the  court.

      After  the  real  estate  has  been  transferred  to  the  RLT,

 you  may  need  to  file  a  new  application  for   property  tax  exemptions,

 such  as  homestead  exemption,

 and  you  should  update  your   homeowner’s  insurance  to  show  both  you  and  the  Trustee  of  the  RLT  as  the  owners  and   insureds.

 You  should  generally  have  any  needed  deed  prepared  and  filed  by  a  competent   attorney  licensed  in  the  state  where  the  real  estate  is  located,

 instead  of  trying  to  do  it  yourself.

    2)   You  should  check  certain  things  before  you  execute  a  deed  to  transfer  property  to  an  RLT,

 and   you  should  ensure  after  the  transfer  that  you  take  any  steps  needed  to  keep  everything  in   order.

    a)   Consider  getting  a  title  search  and  title  insurance.

 If  you  did  not  get  title  insurance  when   you  originally  acquired  the  property,

 as  with  property  you  received  through  a  gift  or  an   inheritance,

 then  you  should  consider  having  a  title  search  performed  and  purchasing  title   insurance.

 Title  insurance  and  a  title  search  are  not  required  in  order  for  the  transfer  to  the   RLT  to  be  valid.


 a  title  search  can  help  you  turn  up  any  potential  title  problems,

 so   that  you  can  get  them  cleared  up,

 and  having  title  insurance  can  make  it  easier  for  you  to   borrow  against  or  sell  the  property  in  the  future.

    b)   Check  with  the  lender  with  regard  to  any  mortgage,

 line  of  credit,

 or  other  debt  before   transferring  real  estate  subject  to  that  debt.

 If  your  real  estate  is  subject  to  a  mortgage,

 line   of  credit,

 or  other  debt,

 then  you  should  notify  the  lender  in  writing  and  attempt  to  get  the   lender’s  consent  to  or  approval  of  the  transfer  before  you  sign  any  deeds  transferring  the   property  to  your  RLT.

 Most  mortgage  documents  contain  a  clause,

 often  called  a  “due  on   sale”  clause,

 that  lets  the  lender  make  your  mortgage  due  in  full  immediately  if  the  property   is  transferred  without  the  lender’s  prior  consent,

 unless  an  exemption  applies  to  the  transfer.

  Federal  law  generally  provides  an  exemption  for  the  transfer  of  the  borrower’s  primary   residence  to  the  borrower’s  RLT.


 this  exemption  does  not  apply  to  real  estate  that   is  not  used  as  the  borrower’s  primary  residence.

 This  means  that  it  is  critical  to  ensure  that   you  have  the  lender’s  approval  before  you  transfer  a  second  home  or  rental  properties  to   your  RLT.

 In  addition,

 although  the  primary  residence  exemption  may  protect  the  transfer  of   your  primary  residence,

 we  think  it  is  generally  a  better  practice  to  notify  your  lender  before   you  make  any  kind  of  transfer  of  real  estate  that  is  subject  to  debt.


c)   Check  with  the  property  tax  authorities.

 Before  you  transfer  a  parcel  of  real  estate  to  an   RLT,

 you  should  contact  the  appropriate  property  taxing  authority’s  office  to  determine  (1)   whether  the  transfer  will  have  any  effect  on  the  valuation  of  your  property  or  any  other  item   that  will  affect  the  calculation  of  your  property  taxes  and  (2)  to  find  out  whether  you  will  still   qualify  for  homestead  or  other  property  tax  exemptions  after  the  transfer  and  what  you  will   need  to  do  in  order  to  continue  receiving  the  benefit  of  those  exemptions.

 As  long  as  you  are   the  primary  beneficiary  of  your  RLT  during  your  lifetime  and  you  will  continue  using  the   property  as  your  primary  residence,

 you  may  still  be  able  to  qualify  for  the  homestead   exemption.


 if  you  have  a  farm  property  or  other  property  that  is  subject  to  special   valuations  or  exemptions,

 such  as  a  conservation  or  agricultural  use  valuation,

 you  should  be   very  careful  before  transferring  the  property,

 even  to  your  RLT.

 In  many  cases,

 any  kind  of   transfer  can  result  in  the  loss  of  the  special  valuation  or  exemption  and  the  need  to  go   through  a  long  and  complex  application  process.

 In  addition,

 benefits  received  in  previous   years  can  sometimes  be  subject  to  recapture  if  the  valuation  or  exemption  is  lost  before  a  set   date,

 which  can  create  a  nasty,

 unexpected  property  tax  liability.

    d)   Ensure  that  you  take  whatever  steps  are  needed  after  the  transfer  to  ensure  that  you   continue  to  receive  the  benefits  of  any  property  tax  exemptions  or  valuations.

 In  Georgia,

 a   transfer  of  residential  real  estate,

 even  from  the  original  owner  to  her  own  RLT,

 can  trigger   the  need  for  the  owner  to  reapply  for  the  homestead  exemption.

 These  exemptions  must   usually  be  filed  within  a  certain  period  during  any  given  calendar  year  in  order  for  the   exemption  to  apply  for  that  year’s  property  taxes.

 For  example,

 Fulton  County,

 Georgia   required  that  homestead  exemption  applications  for  2016  be  filed  between  January  1,

 2016   and  April  1,


 If  other  exemptions  or  valuations  may  apply  to  your  property,

 you  will  also   need  to  ensure  that  you  take  whatever  steps  are  needed  to  obtain  the  benefits  of  those   exemptions  or  valuations  in  a  timely  manner.

    e)   Update  your  insurance  policies.

 Before  you  transfer  real  estate  to  an  RLT,

 you  should  consult   with  your  insurance  companies  to  ensure  that  your  homeowner’s  insurance  and  other   policies  are  updated  as  needed.

 For  example,

 if  the  original  owner  of  a  residence  transfers   that  property  to  her  RLT,

 then  her  homeowner’s  insurance  policy  will  need  to  list  both  the   Trustee  of  her  RLT  along  with  the  homeowner,


 as  insured  parties,

 to  help  ensure   that  no  coverage  gaps  exist.

 This  applies  even  if  the  homeowner  is  also  the  only  Trustee  of   the  RLT.

 Other  property  and  casualty  policies  may  need  to  be  updated,

 and  liability  policies   like  an  umbrella  policy  may  need  to  be  updated  as  well.

 This  is  also  a  good  time  to  get  a  good   insurance  adviser  to  help  you  review  all  of  your  coverages  and  ensure  that  everything  is   adequately  covered  at  reasonable  rates  and  by  good,

 solid  companies.


B)   Marketable  Securities  and  Cash  that  are  NOT  held  in  tax-­‐deferred  savings  such  as  IRAs  or  Qualified   Plans.

 In  general,

 this  means  assets  that  are  held  in  regular  bank  accounts  such  as  checking  and   savings  accounts,

 brokerage  accounts,

 in  CDs  that  are  not  IRA  CDs,


 in  some  cases,

 in  actual  stock   certificates.

    1)   You  need  to  open  accounts  in  the  name  of  the  RLT.

 In  order  to  transfer  marketable  securities   and  cash  that  are  held  in  accounts  (not  in  actual  certificate  form),

 you  need  to  open  one  or  more   of  the  appropriate  kind  of  accounts  for  the  RLT.

 The  bank  or  brokerage  then  needs  to  be  told  to   transfer  the  assets  from  your  individual  account  to  the  RLT’s  new  account.

 If  you  do  hold  actual   stock  certificates  for  any  investments,

 you  could  have  the  issuing  company  issue  new  stock   certificates.


 it  would  generally  be  better  for  you  to  have  these  stocks  added  to  a   regular  brokerage  account  and  taken  out  of  certificate  form,

 because  this  makes  them  easier  to   keep  track  of  and  transfer  in  the  future.

    An  account  opened  for  your  RLT  should  be  opened  in  the  name  of  Trustee(s)  of  the  RLT  in  the   same  basic  way  discussed  above  with  regard  to  real  estate.


 you  may  need  to  put  the   same  information  onto  the  account  paperwork  in  a  different  format,

 instead  of  having  everything   in  one  line.

 For  example,

 instead  of  having  all  the  information  stated  as:  “John  R.


 as   Trustee  or  successor  Trustee(s)  of  The  John  R.

 Smith  Revocable  Trust  U/A  dated  December  1,

  2014,”  the  bank  or  brokerage  paperwork  may  ask  you  to  put  the  name  of  the  RLT  on  one  line   (“The  John  R.

 Smith  Revocable  Trust”)

 the  name  of  the  Trustee  on  another  line  (“John  R.


  the  name  of  the  creator  of  the  RLT  (also  known  as  a  Trustor,


 Grantor  or  Donor)  on   another  line  (“John  R.


 and  the  date  the  RLT  was  signed  on  another  line  (“December  1,


    2)   Do  not  have  more  than  one  RLT  own  any  given  bank  or  brokerage  account.

 In  Georgia  (and   likely  in  many  other  states),

 if  you  and  your  spouse  each  have  separate  RLTs,

 you  should   generally  have  any  marketable  securities  and  cash  owned  in  one  RLT  or  the  other,

 and  you   should  generally  avoid  having  both  of  the  RLTs  named  as  owners  on  any  given  bank  or  brokerage   account.

 This  is  due  in  part  to  the  fact  that  RLTs  cannot  own  assets  as  joint  tenants,

 because  they   don’t  die.

 With  a  normal  joint  bank  or  brokerage  account  held  by  individuals  in  Georgia,

 the   individuals  are  deemed  to  own  the  account  as  joint  tenants  unless  a  different  form  is  specifically   stated  in  the  account  paperwork,

 and  the  surviving  owner  will  automatically  receive  ownership   of  100%  of  the  account’s  assets  at  the  first  owner’s  death.

 If  the  creator  of  one  RLT  dies,

 the   Trustee  (or  successor  Trustee)  is  then  simply  charged  with  following  the  appropriate  terms  of  the   RLT.

 The  RLT  itself  continues,

 and  its  share  of  the  account  will  need  to  be  determined.

 Having  the   RLTs  specifically  own  the  account  as  tenants  in  common  does  not  help,

 due  to  the  way   ownership  of  assets  in  a  joint  account  is  determined  under  Georgia  law.

 In  Georgia,

 the  person   who  contributed  assets  to  a  joint  account  is  the  owner  of  the  assets  she  contributed,

 and  the  

owners  own  the  same  respective  proportions  of  any  income  (interest,


 or  capital  gains)   generated  by  the  assets  in  the  account.

 If  an  account  is  held  by  two  people  (or  two  RLTs)  as   tenants  in  common,

 then  the  deceased  owner’s  actual  share  of  the  account  has  to  be   determined  in  order  to  figure  out  what  portion  of  the  assets  will  be  controlled  by  that  owner’s   Will  or  RLT.

 This  often  means  tracing  each  owner’s  contributions  to  and  withdrawals  from  the   account  over  time.

 This  kind  of  tracing  can  be  difficult  to  near-­‐impossible.


 it’s   generally  best  to  just  avoid  these  issues  by  not  having  RLTs  own  accounts  jointly.

    3)   Do  not  use  payable  on  death  designation  or  transfer  on  death  registrations  on  any  assets   owned  by  an  RLT.

 Payable  on  death  (“POD”)  designations  apply  to  bank  or  brokerage  accounts   other  than  IRAs  or  other  tax-­‐deferred  retirement  accounts.

 Transfer  on  death  (“TOD”)   registrations  apply  to  individual  securities,

 such  as  stocks,


 or  mutual  funds.

 They  are  a   kind  of  beneficiary  designation  and  are  designed  to  allow  an  asset  subject  to  the  POD  designation   or  TOD  registration  to  transfer  automatically  to  another  person  at  the  original  owner’s  death.

  Because  RLTs  do  not  die,

 having  a  POD  designation  or  TOD  registration  apply  to  assets  owned  by   the  RLT  is  meaningless,

 and  just  creates  the  possibility  for  confusion  and  disputes,

 especially  if   the  POD  or  TOD  beneficiary  is  not  the  same  as  the  beneficiaries  who  would  receive  the  assets   under  the  RLT.

 In  fact,

 while  POD  designations  and  TOD  registrations  can  have  their  place  in  an   estate  plan,

 in  many  cases  they  can  end  up  actually  creating  problems  and  causing  the  plan  not   to  work  as  intended,

 and  they  create  the  need  for  more  changes  to  be  made  if  the  desired  asset   distribution  plan  changes.

 For  these  reasons,

 we  often  recommend  that  our  clients  avoid  using   POD  designations  and  TOD  registrations  even  when  the  clients  are  not  using  RLTs  as  part  of  their   planning.

    C)   Interests  in  Closely  Held  Business  Entities,

 Such  as  Stock  in  Corporations,

 Partnership  Interests,

 and   Limited  Liability  Company  (“LLC”)  Interests.

 Interests  in  companies  that  are  not  publicly  traded   (“closely  held”  companies)  can  be  held  as  shares  of  stock  in  corporations,

 partner  interests  in   different  kinds  of  partnerships,

 and  member  interests  in  LLCs.

 You  should  always  consult  a   competent  attorney  before  transferring  any  interest  in  a  closely  held  business.

 While  the   mechanical  method  of  transferring  these  interests  is  often  fairly  easy,

 involving  the  execution  of  fairly   simple  documents,

 there  are  many  other  factors  that  must  be  carefully  considered  before  the   transfer  is  carried  out.

 Many  closely  held  businesses  use  agreements  that  place  restrictions  on   transfers  of  interests  in  their  companies,

 such  as  a  shareholders’  agreement,

 an  operating   agreement,

 or  a  partnership  agreement.

 These  restrictions  can  prevent  certain  types  of  transfers   completely,

 can  require  the  consent  of  certain  other  parties  before  a  transfer  is  made,

 and  can  limit   the  rights  and  interests  actually  given  to  a  transferee  or  require  the  consent  of  certain  parties  before   the  transferee  receives  full  ownership  rights.

 Any  such  agreement  should  be  reviewed  before  any   transfer  of  an  interest  in  a  company  is  attempted,

 and  any  restrictions  on  or  requirements  for  the   transfer  should  be  met.

 If  an  attempted  transfer  fails  to  satisfy  any  such  requirements,

 the  result  

could  be  that  the  transfer  is  simply  ineffective  and  void.


 in  some  cases,

 the  attempted   transfer  could  trigger  some  type  of  penalty  or  a  requirement  to  pay  damages  to  other  owners.

            D)   Do  NOT  Try  to  Transfer  Tax-­‐Deferred  Retirement  Savings  Accounts  Such  as  IRAs  or  Qualified  Plan   Accounts  to  an  RLT  During  the  Owner’s  Life.


 Make  Sure  You  Use  Correct  Beneficiary   Designations  With  Regard  to  These  Accounts.

      1)   If  the  owner  of  a  tax-­‐deferred  retirement  savings  account  such  as  an  IRA,



 or   other  qualified  plan  is  changed  during  the  owner’s  life,

 the  assets  in  the  account  can  become   subject  to  income  tax  immediately.

 You  should  not  attempt  to  transfer  the  ownership  of  an  IRA   or  qualified  plan  account  during  your  lifetime.

 If  the  ownership  of  this  kind  of  account  is  changed,

  the  IRS  views  the  change  of  ownership  as  if  the  original  owner  withdrew  all  of  the  assets  from   the  account  at  the  time  of  the  change.

 This  causes  the  assets  to  be  subject  to  income  tax  and   possible  penalties,

 producing  a  potentially  nasty  income  tax  result  and  causing  the  loss  of  future   income  tax  deferral  on  those  assets.

 Please  note:  changing  plan  administrators  or  IRA  custodians   through  a  proper  transfer  is  not  considered  a  change  of  ownership  and  should  not  cause  income   tax  problems.

    2)   Instead  of  changing  the  ownership  of  a  tax-­‐deferred  account,

 you  need  to  have  the  beneficiary   designation  on  the  account  provide  for  the  desired  distribution  of  the  assets  after  your  death.

  You  need  to  get  a  change  of  beneficiary  form  for  each  of  your  tax-­‐deferred  retirement  savings   accounts,

 and  change  each  beneficiary  designation.

 The  beneficiary  designation  on  a  tax-­‐ deferred  retirement  savings  account  will  control  what  happens  to  the  assets  in  that  account  at   the  death  of  the  account  owner.

 Beneficiary  designations  must  be  carefully  coordinated  with  the   overall  estate  distribution  plan.

 In  some  cases,

 such  as  where  beneficiaries  will  receive  their   assets  outright  under  your  RLT,

 this  will  mean  that  individuals  and  charities  named  as   beneficiaries  under  your  RLT  will  also  need  to  be  named  directly  as  beneficiaries  under  your  IRA   and  qualified  plan  accounts.

 In  other  cases,

 such  as  where  your  RLT  provides  for  your   beneficiaries  to  receive  their  assets  in  trusts  that  will  continue  after  your  death,

 the  beneficiary   designation  will  likely  need  to  actually  designate  the  trusts  that  will  eventually  be  created  for   those  beneficiaries  as  the  beneficiaries  of  the  IRA  and  qualified  plan  accounts.

 Please  note:  You   generally  do  not  want  to  simply  have  your  RLT  itself  designated  as  the  beneficiary  of  tax-­‐deferred   retirement  savings  accounts,

 because  this  will  usually  not  produce  a  desirable  income  tax  result.

    If  a  tax-­‐deferred  retirement  savings  account  does  not  have  a  proper  “designated  beneficiary”   under  the  applicable  IRS  rules,

 the  assets  must  usually  be  withdrawn  from  the  account  over  a   very  short  period  of  time  (within  as  few  as  5  years,

 if  the  account  owner  is  under  70  1/2  at   death).


 if  an  individual  is  properly  designated  as  the  beneficiary  of  an  IRA  or  other  tax-­‐ deferred  retirement  savings  account,

 the  individual  is  normally  allowed  to  use  his  own  life  

expectancy  as  the  basis  for  calculating  the  minimum  required  distributions  (“MRDs”)  that  he   must  take  from  the  account  during  his  lifetime.

 This  can  produce  a  significant  amount  of   additional  income  tax  deferral  and  allow  a  correspondingly  greater  amount  of  wealth  to  be   transferred  to  the  beneficiary  of  the  account.

 Individuals  will  normally  qualify  as  proper   designated  beneficiaries.

 A  trust  is  not  normally  considered  to  be  a  proper  designated   beneficiary

 but  a  trust  can  be  a  proper  designated  beneficiary  if  it  meets  certain  IRS  rules.

 If  the   trust  meets  the  right  rules,

 the  IRS  will  look  through  the  trust  and  pretend  that  a  given  individual   beneficiary  of  the  trust  is  actually  the  “designated  beneficiary”  of  the  account  for  MRD  purposes.

    Most  normal  RLTs  are  not  structured  in  a  way  that  allows  the  RLT  itself  to  qualify  as  a  proper   designated  beneficiary  on  tax-­‐deferred  retirement  savings  accounts  after  the  death  of  the  RLT’s   creator.

 This  means  that,

 if  the  RLT  itself  is  named  as  the  beneficiary  of  a  tax-­‐deferred  retirement   savings  account,

 the  IRS  will  likely  treat  the  account  as  having  no  designated  beneficiary.


 if  the  RLT  will  create  new  trusts  for  its  beneficiaries,

 those  trusts  can,

 with  proper   drafting,

 qualify  as  proper  designated  beneficiaries  and  allow  their  individual  beneficiaries  to   take  MRDs  based  on  at  least  the  life  expectancy  of  the  trust’s  oldest  living  beneficiary.

 To  get  the   best  result,

 the  beneficiary  designation  used  on  each  account  should  also  designate  the  Trustees   of  each  of  the  trusts  that  the  RLT  will  create  as  separate  beneficiaries  of  shares  of  the  account.

 As   an  example,

 if  your  RLT  provides  for  a  Residuary  Trust  to  be  created  after  your  death,

 and  if  the   Residuary  Trust  will  divide  into  equal  shares  for  each  of  four  children,

 the  beneficiary  designation   could  read  as  follows:    

  Smith  Revocable  Trust  fbo  Child  A


 Smith   Revocable  Trust  fbo  Child  B


 Smith   Revocable  Trust  fbo  Child  C


 Smith   Revocable  Trust  fbo  Child  D.

    Please  note:  the  example  above  will  not  be  suitable  for  all  RLT-­‐based  plans.

 If  there  may  be   more  than  one  trust  created  by  your  RLT  after  your  death,

 and  if  the  different  shares  are   determined  by  a  formula  based,

 for  example,

 on  the  availability  of  your  generation-­‐skipping   transfer  (“GST”)  tax  exemption,


 for  the  best  income  tax  results,

 the  beneficiary   designation  used  on  your  tax-­‐deferred  retirement  accounts  may  also  need  to  include  the  same  

kind  of  formula  to  create  the  shares  to  be  paid  to  each  beneficiary’s  separate  trust.

 You  should   ensure  that  you  have  the  help  of  a  qualified  professional  adviser  before  you  file  or  change  the   beneficiary  designations  on  your  tax-­‐deferred  retirement  savings  accounts.

    E)   Life  Insurance  Policies.

 You  can  change  the  ownership  of  a  life  insurance  policy  on  your  own  life  to   your  RLT,

 if  desired,

 but  in  most  cases  you  should  only  need  to  change  the  beneficiary  designation  on   the  policy.

 To  do  so,

 you  need  to  obt