A revocable living trust (RLT) can be a great estate planning option to avoid probate and assure the private, and often seamless, transfer of your assets to your heirs. To be effective, however, your RLT must be funded properly, whether during your life or when you pass.
The importance of funding a revocable living trust
So you’ve consulted with an attorney and you’re now the proud owner of a revocable living trust. That’s great news, but if you don’t fund the trust timely and properly, your trust may not be worth the paper it’s printed on. In short, if you fail to transfer your assets to your trust, your estate will not avoid probate. That is not to say that the trust itself would be a bust – a probate court can still have your assets transferred into your trust. And if you chose the right attorney, you would also have a “pour-over will” in place as a safety net. This document must be probated, but it captures and transfers into your RLT any overlooked assets that weren’t previously retitled in the name of the trust.
How to fund a living trust
When you use TrustBridge Legal to draft your RLT, we will provide comprehensive instructions on how to fund your trust, with specific direction for the various types of assets you may own.
The process of funding an RLT simply means transferring title to your assets from your name to the name of the RLT. Each type of asset has its own requirements to accomplish this transfer of title. For example, with real estate, a deed evidencing the transfer of title must be filed in the county where the property is located. Whereas with financial accounts, a simple written request to your bank or broker usually suffices to transfer title.
When requesting that title be transferred to the RLT, many entities will require proof that the trust exists. Since an RLT often contains confidential information, providing a copy of the trust itself is impractical. Instead, a one-page summary of the trust document, called a certificate of trust, can be used to meet any proof requirements, while preserving the confidentiality of the RLT.
What assets should be transferred into a living trust
You might think that all your assets need to be transferred into your RLT, but that is not the case. In general, the following assets are good candidates to be titled in the name of your trust:
- Real estate (especially properties in other states, so additional probate is avoided)
- Bank and savings accounts (especially if beneficiaries cannot been designated)
- Investments (except for IRAs and other tax-deferred investment plans)
- Business interests
- Notes receivable
- Personal property
What assets should not be transferred into a living trust
Not all assets should be retitled in the name of your trust. For example, retirement accounts and life insurance policies generally should not be transferred to your RLT for tax reasons, and because these assets will pass to your heirs outside of the probate process according to their beneficiary designations. That said, life insurance and retirement accounts should still properly align with your estate plan, so these decisions should be made on a case-by-case basis.
Likewise, transferring title to your car, recreational vehicles, or watercraft is usually not necessary, as they can be retitled to your heirs using state-issued forms outside the probate process. An exception to this might be when a vehicle is worth a lot of money and increases the value of your estate to a point where estate taxes may be due.
How should purchases of new assets be handled?
If you determine that certain assets can be purchased in the name of your trust, as trustee you will simply complete the transaction in the name of the RLT, as outlined in the trust document. If an asset cannot be titled in the name of the RLT at the time of purchase, you can still buy the asset and transfer it to the trust afterwards. And remember, if for whatever reason you fail to title eligible assets in the name of the trust and you pass untimely, any untitled assets will pass to your trust via the terms of your pour-over will, provided your estate plan includes one.
In conclusion, a properly funded revocable living trust is a great vehicle to avoid the time and expense of probate and allow the seamless transition of title to your assets to your heirs. To learn more about creating a living trust or how to fund your trust, contact TrustBridge Legal using the form below.
