Retirement Planning: A Good Reason for Having a Revocable Trust–and Funding It

Written by Jim Worthington on April 30, 2017

Putting your affairs in order for retirement is a perfect reason to have a living or revocable trust. The ideas in this post also work if you have been diagnosed with an illness that will weaken your mind or body. Either way, taking these steps will simplify your financial life and help when you aren’t able to manage your own affairs.

During the busy times of your life, you may have created a little bit of a mess:

  • You opened a special bank account to save for one event and then never got around to closing the account after it was finished.
  • A friend’s daughter became a financial advisor and you opened an account to help her get started in the business.
  • An insurance company demutualized and you never did anything about the 63 shares in that company. Through the magic of dividend reinvestment, you now have 71.239 shares.
  • You ended up with an old-fashioned stock certificate or two that is in a safe deposit box. But, do you know where the key is?
  • You’re just not sure who is named as beneficiary of a small life insurance policy you bought years ago. Or, perhaps worse, you’re 100% sure but you’re also 100% wrong. Or, maybe it still names your ex-spouse as beneficiary.

Preparing for retirement is the ideal time to clean all of this up. And, having a funded revocable trust is the perfect way to do it. The first step is to work with a lawyer to create the trust. It will say what happens (1) during any disability and (2) after your lifetime. The second step is to fund it.

Funding a trust means transferring assets to it and making it the beneficiary of assets like IRAs that need to remain in your name. How do you do this?

  • Decide on one or two investment advisers and open accounts in the name of the trust. Close your other accounts and centralize everything in those one or two main accounts.
  • Work with your investment adviser to get those stock certificates held in street name with the adviser.
  • Some investment advisers offer a bank account tied to your investment account. This can really simplify your life, especially at tax time when everything is on one statement.
  • Close those extra bank accounts and put the money in the account linked to your investments or in one account in the name of the trust.
  • If you have multiple retirement plans, combine them into one account. This will make taking Required Minimum Distributions much easier.
  • Get change of beneficiary forms for your retirement accounts and life insurance. Do this even for the ones where you’re sure the beneficiary is fine; old files get lost so it will be good to have your own record of making the change. Work with your lawyer to name the beneficiaries. If you are naming a trust as a retirement plan beneficiary, the trust will need special language for tax reasons.
  • Decide if it’s worth re-titling your vehicles in the name of the trust. The answer will depend on the value, whether they’re jointly owned with someone, whether you expect to own them at your death, and how easy it is to change the title.

If you become disabled or just need help managing your finances, the person or organization you name as successor trustee can step in and take over. That job will be much easier because you’ve taken the time to put everything under one roof, so to speak.

Once you’ve done this, pat yourself on the back and enjoy life!