I recently had a client call me for advice about administering her father’s estate. Her father thought he had completed his estate plan by creating a living trust and naming his daughter as the trustee and primary beneficiary. However, he did not transfer ownership of his bank accounts to the trust before he died. This is a costly mistake for a trust-based estate plan. Notwithstanding her father’s efforts, the daughter will be forced to open probate to access the accounts that were not transferred into the trust.
One of the most common reasons for establishing a living trust is to avoid probate and take advantage of estate tax exemptions. Estate planning, however, does not end with the execution of the trust document. After executing your living trust, you still need to “fund” your trust. Funding your trust is the process of transferring your assets from you to your trust. To do this, you physically change the titles of your assets from your individual name (or joint names, if married) to the name of your trust. Establishing a trust without putting your assets into the trust defeats the purpose of having a trust.
If properly transferred into your living trust, assets pass to your named beneficiaries without involving the probate court. But your trust can only control the assets you put into it. You may have a great trust, but if you have not funded it, it doesn’t control anything. If your goal in having a trust is to avoid probate at death and court intervention at incapacity, then you must fund your trust while you are still able to do so.
As you may know, a proper trust-based estate plan includes a "pour-over will.” The pour-over will acts as a safety net directing that any asset you own outside the trust at the time of death go into the trust. The will names the trust as the beneficiary. Be aware, however, that if the value of your non-trust assets is over $150,000.00, your estate will require a probate proceeding to effectuate the terms of the pour-over will to enable those non-trust assets to flow into the trust.
Trust funding is not a difficult process but it is imperative that you take the steps to fully fund your trust if you want to avoid having your estate go through probate. Generally, the types of assets that should be transferred into your trust include real estate, bank accounts, brokerage accounts, business interests, and notes payable to you. Typically, retirement accounts transfer outside your trust but this is something you can explore with your estate planning attorney.
Your estate planning attorney can help you with the trust funding process. But once you understand the process, you may decide to transfer many of your assets yourself to save on legal fees. It is important to make funding your trust a priority and to continue the process until you have retitled all your assets. One way to do this is to make a list of your assets, their values and locations, and then start retitling the most valuable ones and work your way down. For motivation, keep in mind the end-goal, which is to have the peace of mind of knowing that your trust is completely funded and that your assets will not need to go through probate. Stay tuned for future posts with more specific information about which assets to retitle in your trust and which assets to transfer outside your trust.
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This article provides only general legal information and does not provide specific legal advice. Information contained herein is not a substitute for a personal consultation with an attorney. Pratt Law offers a complementary consultation to discuss whether we can help you with your estate planning, estate administration, or probate needs.