Syracuse estate planning attorney Frederick P. Davies of Davies Law Firm is providing guidance on how families in Central New York can properly fund their living trust estate plans to ensure those plans work as intended. A living trust only protects the assets that are actually transferred into it, and simply signing a trust document is not enough under New York law to avoid the probate process in Surrogate’s Court.
Understanding Living Trust Funding
According to Davies, New York Estates, Powers and Trusts Law Section 7-1.18 makes clear that a lifetime trust is only valid as to assets that have been formally transferred to it, and a transfer is not accomplished simply by including language in the trust document that describes an assignment. Each asset requires a separate, formal transfer that changes the legal title from the individual’s name to the name of the trustee.
Real estate is typically the most valuable asset families transfer into a living trust, and it requires careful attention to New York’s recording requirements. Under New York Real Property Law Section 291, the deed conveying ownership to the trustee must be acknowledged before a notary and recorded with the county clerk’s office. In Onondaga County, deeds are recorded at the County Clerk’s Office at 401 Montgomery Street in Syracuse.
Transferring Assets
Bank accounts, certificates of deposit, and investment accounts can typically be retitled by working directly with each financial institution using a copy of the trust document or certification of trust. Transferring investments into a revocable trust does not trigger capital gains taxes because the IRS treats the trust as a grantor trust during the owner’s lifetime, and the cost basis in each investment carries over unchanged.
Life insurance policies and retirement accounts require special attention because they pass by beneficiary designation rather than through the trust itself. Naming a trust as beneficiary of a retirement account can have significant income tax consequences, since trusts reach higher tax brackets faster than individuals.
One of the most common funding mistakes occurs during a mortgage refinance, when lenders require that property be taken out of the trust temporarily to close the loan, and after the refinance is complete many homeowners forget to transfer the property back. The firm advises that trust funding requires ongoing attention, and families should review asset titles at least annually and after any major financial event.
A pour-over will serves as a safety net by directing unfunded assets into the trust through probate, but assets that pass through the pour-over will must still go through Surrogate’s Court, making the pour-over will a backup rather than a substitute for proper trust funding during the grantor’s lifetime.
For families in Syracuse and Onondaga County seeking to ensure their living trust estate plans are properly funded and effective, consulting with an experienced estate planning attorney can help prevent gaps that lead to unnecessary probate proceedings.
Original reporting: KTBS 3 (Shreveport) — read the source article.
