By: Barry E. Haimo, Esq.
May 2, 2019
The Problem of Not Funding Your Revocable Trust
One commonly-used strategy for estate planning is to create a revocable – or living – trust. This is a legal entity entrusted with holding ownership of an individual’s personal assets. It offers a private, orderly way to distribute assets upon the trust-maker’s death, and is generally considered to be a more effective tool in planning your estate than a simple Last Will and Testament.
This is true for several reasons beyond the privacy aspect:
- Flexibility for changes and amendments
- Protection from creditors for the trust’s beneficiaries
- Ability for the beneficiaries to avoid probate
One thing a revocable trust does not do? Fund itself.
How big of a deal is that? How do you do it? Read on.
What You Should Know about Funding Your Trust
In order to fully take advantage of the benefits a revocable trust provides, you must actually change the titles of each individual asset from your individual name (or joint names, if married) to the name of your trust. In most cases, you will also be in charge of changing most beneficiary designations to your trust. This is one specific aspect of how your estate will avoid going into probate.
Although you are ultimately responsible for every transfer, your attorney will likely handle more complex assets like real estate, then provide you with instructions and examples for how to transfer others on your own.
Generally speaking, a good attorney will actually sit down with you to review each asset, explain the transfer procedure, and provide advice on what assets should go into your trust, as well as your transfer options for them. Once you understand the process, you may choose to handle much of it yourself or save time by having your attorney do it for you.
One question estate planning attorneys get a lot is whether this process of transferring assets is difficult to do. Short answer: no. However, it’s easy to leave the funding of your trust on the back burner because of that. Don’t let this happen to you.
What you absolutely want your attorney to prepare is a “pour over will” in conjunction with the trust documents the firm draws up for you. This addendum provides a safety net for any forgotten assets by “catching” them and sending them on to your trust upon your death. This bit doesn’t necessarily protect those forgotten assets from probate, but can aid in shortening the process.
Bottom line? Without a properly funded trust, your estate cannot avoid probate. Moreover, anything that doesn’t make it into your trust will more than likely become tied up in probate regardless of your intentions.
How do you begin the funding process?
Create a list of your assets, their values, and their locations, then start with the most valuable ones and work your way down. Make it a priority to continue transferring assets at your own pace until the task is complete.
When properly prepared, the cost and time savings resulting from your revocable trust will benefit your loved ones tremendously.
Barry E. Haimo, Esq.
Strategic Planning With Purpose®
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