If your goal is to avoid probate, don’t miss the second step in trust-setup – funding.
After you have implemented a well-thought-out estate plan, it is a good idea to review things with an estate planning attorney from time to time. Just so you can go in and pad your attorney’s pockets a little more? No, of course not! But, you should try to ensure that the plan into which you put time, careful thought and expense will actually work out! What do I mean? Well, I will not try list every reason why a well-thought-out plan could fail, but I do want to delve into one – that is, a failure in trust funding.
A Living Trust is the primary instrument (or tool) involved in many individual estate plans. A Living Trust is a trust agreement that you set up during your lifetime. You are the beneficiary of the trust while you are living and you name individuals that you wish to benefit after your death. Living Trusts can usually be amended or revoked altogether during your lifetime. Sometimes, Living Trusts are referred to as Revocable Trusts.
There are many reasons to set up a Living Trust, including privacy, flexibility, and avoidance of probate. Many people choose to try to avoid probate because it is public, can take a long time, and can be expensive. Living Trusts can address each of these concerns; they can provide a means for transferring your property to your chosen beneficiaries in an efficient manner, oftentimes more quickly and with less expense than probate.
So, you already know all this? Yes. You already have a Living Trust? Yes.
Have you funded it? Hmmm… I meet with a number of clients each year that have a Living Trust that they have not yet funded. And usually they do not realize it.
Fairly often, I meet a new client and one of the first things he or she proudly tells me is that they already have a Trust set up (usually a Living Trust).
I say, “Great, so you have a plan to avoid probate and save on probate expenses.”
Then I say, “Great, let’s make a list of your assets to see which will actually avoid probate.”
This is when I get a confused look. “But I just told you, I already have a trust that takes care of everything.”
I ask, “What assets have you transferred into the trust?” Oftentimes, the client does not know what I mean or what, if anything, they have transferred anything into the trust.
This is the problem.
After you sign that wonderful Living Trust document – that is printed on fancy paper and maybe placed in an impressive-looking binder, and probably cost you a pretty penny, you still are not done! You have taken Step One but you still need to take Step Two! If you want to avoid probate, you have to take action to transfer assets into the trust – that is, you have to fund the trust (that is, you have to transfer assets into the trust). If you do not take action to fund the trust while you are still living you will not avoid probate, and might not achieve other benefits you planned when you created the trust. Simply creating a trust does not mean you have funded it.
Each type of asset is transferred into a trust in a different way. For real estate, you sign a deed transferring the real estate to the Trustee named in the Trust. For bank accounts, you can go to the bank and title the account in the name of the Trustee, or you can name the Trustee as the “pay on death” beneficiary of the account. Other assets, such as life insurance, tangible personal property, businesses, stock, retirement accounts, etc… all have specific ways to be transferred into your trust. After you transfer an asset into the trust, it will avoid probate, and the more assets you transfer in, the more you avoid probate.
When one my clients decides to create a Living Trust, I assist the client in making a list of assets, determine which assets should be transferred into the trust, and make plans for accomplishing the transfers. When the client comes back to the office to sign the Living Trust document, I usually have additional documents to sign that fund the trust and transfer some assets into the trust – such as deeds for real estate and assignments for tangible items of personal property. Lastly, I provide written instructions that explain how to transfer other assets into the trust after the client leaves the office.
If you have a concern about funding a trust you have created, contract an experienced estate planning attorney to advise you.
Without meeting with you and hearing about your situation, I cannot give blanket advice that all of your assets should be transferred into your trust. In this blog entry, I am limiting the scope of my advice to using a Living Trust to avoid probate – and explaining that creating your Living Trust is only Step One – that if you want to avoid probate, you also need to fund the Living Trust, Step Two. People create trusts for many other reasons and there are many different types of trusts and there can be very good reasons for not funding the trusts with specific assets. Again, if you have specific questions or concerns about your estate plan, you should contact an experienced estate planning attorney.
© 2018 Bolin & Troy, LLC