Avoiding Recovable Trust Problems

By William S. Fralin, Esq.

The Estate Planning and Elder Law Firm, PC

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Avoiding Recovable Trust Problems

The revocable living trust has become a common estate planning tool to avoid the time and effort required by the probate process; however, the use of a revocable living trust requires you to retitle your assets, including bank and brokerage accounts, in the name of the trustee of your trust. The financial institution will request that you provide a taxpayer identification number (“TIN”) for the new account.
You may experience problems when titling interest-bearing investment accounts (i.e., bank and brokerage accounts) in the name of the trustee of your trust, because of the financial institutions requirement to send a 1099-INT reporting the interest earned on the account and the necessity to properly match the TIN for the trust with the name of the taxpayer to whom the number belongs. The Internal Revenue Service (IRS) generally compares the first line of the taxpayer name on the 1099 with the reported TIN. If the name and number do not match, then the IRS sends a notice of incorrect TIN to the financial institution. The financial institution then must obtain the proper TIN or otherwise adjust the style of the account to avoid receiving future notices.
Here are some examples of solutions to this titling problem
(1) Assume that Jim Smith is the grantor and the initial trustee of the Jim Smith Revocable Living Trust. Since the trust is a grantor trust, it is proper to use Jim Smiths social security number (SSN) as the TIN for the account. As far as the financial institution is concerned, either of the following styles will result in proper matching of name and TIN, because Jim Smiths name is in the first field of the style of the account
Jim Smith, Trustee of the
Jim Smith Revocable Living Trust
or Jim Smith Revocable Living Trust,
Jim Smith, Trustee
(2) Assume the same facts, but that Jim Smith is now incapacitated and that his son, Bill Smith, is the successor trustee. Jim Smiths SSN should still be used as the TIN for the account. In this case, the best style of the account, as far as the bank is concerned, is the following
Jim Smith Revocable Living Trust,
Bill Smith, Trustee
(3) Assume further that Jim Smith has now died, and that the trust will continue, with no change of name, for the benefit of Mary Smith. Assume further that Bill Smith is the trustee, and that it is not a grantor trust with respect to Bill Smith or Mary Smith. So the trust should now obtain a TIN and use that TIN for the account. In this case, the name of the trust must be matched with the trusts TIN. As far as the bank is concerned, the style of the account may have to be
Jim Smith Revocable Living Trust, Bill Smith, Trustee
The revocable living trust can be a valuable tool to reduce the effort and expense of the probate process; however, to use this tool effectively, you must correctly fund the trust.