Funding of Revocable Living Trusts by Hammerle Finley Law Firm

Revocable living trusts are often used as an estate planning tool. They are so common, in fact, that many people do not realize they come with special concerns. Below are a few of the issues that often arise.

Bank Accounts

Bank accounts that are transferred into a revocable living trust can easily exceed the standard maximum deposit insurance amount (SMDIA) insured by the Federal government. That insurance is intended to cover deposits up to the SMDIA of $250,000 per individual if a federally insured bank fails. There are special coverage rules for revocable trust accounts that could increase the amount of coverage. These rules have a calculation based upon the number of beneficiaries and whether a particular beneficiary is also named in a payable on death account, “in-trust-for” account or a Totten trust account.

How do you know if your trust accounts will be covered? Start by reviewing 12 CFR Section 330.10(a) and go from there.

Real Estate

Real estate that is transferred into a revocable trust could lose coverage under the owners’ title insurance. That is because the trust may be treated as a separate entity. The rules vary by state. In Texas, which uses forms promulgated by the State Board of Insurance, residential real property will continue to be covered after it is transferred into a revocable living trust. Reassured? Don’t be because disputes could still come up about whether the policy continues to cover claims by the named insured after the property is deeded into the trust, and claims by the trustee or beneficiary of the trust.

How do you know if your title insurance coverage on the property will continue? Review your current title policy and pay special attention to the date the title policy was issued. Note also that the above form addresses only residential real property and not commercial property. The safest, albeit expensive, course is to obtain new title insurance.


While we are talking about residential real property, we should specifically address homesteads and the two exemptions that Texas allows: one for creditor protection and one for property tax exemption. No one wants to lose these exemptions. Texas law is clear that a homestead owned by a revocable trust is protected from seizure by creditors provided the trust meets the definition of a “qualifying trust.” The law regarding the property tax exemption is a bit murkier. It, confusingly, uses a different definition for “qualifying trust” that requires some magic language in the document.

Joint Revocable Trusts

Joint revocable trusts, which are common in community property states like Texas, are the subject of ongoing debate. A joint revocable trust is created when the married couple are both grantors in the same trust. Problems arise when the couple do not address how property (single or community) can be added or removed from the trust, whether the trust can be revoked by just one of them, and what happens to the power to revoke if one of the grantors becomes incapacitated. Another big issue is taxes; funding the trust could lead to a taxable gift issue for the grantors and other beneficiaries of the trust.

Multi-Party Accounts

Multi-party accounts can throw a huge wrench into revocable trust planning. An account held “with right of survivorship” will not pass to a beneficiary such as a trust and the trust could end up being underfunded.

So much for the issues that can arise before a grantor’s death. The after-death issues can be just as interesting, but those are best left for another day and another column.

Need Guidance On Your Trust? Contact Hammerle Finley Law Firm

Virginia Hammerle is an attorney with Hammerle Finley Law Firm whose practice includes probate law, estate planning and contested litigation.  To receive her newsletter contact her at