As of late, many of my clients are choosing to structure their estate plan using a revocable living trust instead of relying simply on a will. They prefer to cost advantage, the privacy, the savings in time and the added control over assets that a trust can provide in the event of their incapacity and death.
When properly prepared and funded, a trust can avoid the public, costly, and time-consuming probate process. It can let you provide for your spouse during your spouse’s lifetime and for your children after your spouse’s death, which can be important particularly in second marriages or for blended families. It can defer or reduce estate taxes and a trust can protect inheritances from court interference, creditors, spouses, divorce proceedings, and irresponsible spending.
Still, many people make a big mistake that sends their assets right into the court system: they do not fund their trusts.
Funding your trust is the process of transferring your assets from you (as an individual) to your trust (with you as the trustee of said trust). To do this, you physically change the titles of your assets from your individual name to the name of your trust. If you are married, you and your spouse might change the titles of your jointly owned assets to your joint trust or to each of your individual trusts, whether in equal or unequal portions.
If you have signed your trust agreement but have not changed titles and beneficiary designations, you are unlikely to avoid probate. Your trust agreement and trustee can only immediately control the assets you have put into the trust. You may have a great trust, but until you fund it (transfer your assets to it by changing titles or provide for transfer by beneficiary designation), it does not control anything.
Below are a few examples of assets you may want in your trust and others which would not be appropriate to fund your trust:
Assets you probably want in your RLT:
- Real property (home, land, other real estate)
- Bank/credit union accounts, safe deposit boxes
- Investments (CDs, stocks, mutual funds, etc.)
- Notes payable (money owed to you)
- Life insurance (or use irrevocable trust)
- Business interests, intellectual property
- Oil and gas interests, foreign assets
- Personal untitled property
Assets you may not want in your RLT:
- IRAs and other tax-deferred retirement accounts
- Incentive stock options and Section 1244 stock
- Interests in professional corporations
- Funding real estate into an RLT is state specific and may not apply in all states
To learn more about estate planning and planning when new residency is involved, contact Davis, Davis & Associates today to schedule a consultation.