Avoid Probate by Funding Revocable Trust
Avoid sending your family through the probate process because you failed to properly fund your revocable living trust centered estate plan. You've heard me talk in many, many videos on how important it is to fund your trust.
What does it mean to exactly fund your trust?
It means to transfer the title of your assets into the name of your trust. So that means if you have a house, for example, and you own it with your wife, Sally, then the house is probably tiled as Johnny and Sally, owners of this house.
If it's titled that way and not in your trust, then if one of you passes away, then it's probably going to have to be probated to transfer it to the other one.
And if both of you have passed away, then it's probably going to have to be probated to get it into the name of your heirs So what you want to do is properly fund your trust and so that house would be funded in the name of your trust.
Instead of Johnny and Sally, it would be Johnny and Sally, Trustees of the Johnny and Sally Revocable Living Trust. If you have a revocable living trust and for whatever reason, you don't have your house in the name of your trust or a bank account.
Well, get busy. Get it into the name of your trust.
The first thing is you're not alone. Unfortunately, we see this over and over again, even with trusts that we create. Sometimes an older couple will come in and they'll have a pretty good sized house because that was the house that their family grew up in. Right?
We will make certain before they leave our office that that house, that property is put into the name of their trust. So the trust technically owns that piece of property. What happens, though, is a couple of years later, they sell that property and they downsize to a smaller house or a condominium.
When they get that condominium, they, for whatever reason, don't tell the title company or their realtor and the house is put into their name and not the name of their trust. So then when they both pass away, unfortunately, even though they have set up this great revocable living trust centered estate plan, we have to probate their estate for that one piece of property that could have very, very easily been put into the name of the trust if they had just done it when they purchased the property.
Funding is simply the process of changing the title from your name to the name of the trust, and it can be accomplished in a couple of different ways. The first is well if its real estate just doing a deed from yourself to your trust that effectively changes the title of the property from your name to the trust bank accounts.
The same way you've got a bank account, go to your bank and tell them I have a trust. Your estate planning attorney will usually give you what's called a certificate of trust or an affidavit of trust. You show that to the bank and you ask them to put your bank accounts into the name of your trust, your checking and your savings account.
Most banks will let you keep the same account number. They just change the title from your name to the name of your trust.
I know what you're saying already because we get this question a lot, and that is Steve. I have assets that don't have a title to them. What about my jewelry, my artwork, stuff like that for those particular items?
You're estate planning attorney should help you do what's called an assignment to your trust. Basically, you assign those items because you do have ownership in them. You assign ownership of those items to your trust.
The next thing to do if you have, let's say, an insurance policy is you want to make sure that the beneficiary designation is the trust, if that's what you want to do. Sometimes families will just have that insurance policy pay out directly to somebody, usually a spouse or children or somebody.
But if you have minor children or if you don't think your children, even though they're adults, are going to be very good with money, then you probably want to have that insurance beneficiary, be your trust so that your trustee, your successor, trustee can distribute that money according to the terms of your trust and your child is not all of a sudden the recipient of a 100,000 200,000 dollar or 300,000 dollar windfall.
You want to make sure that they get that money if they're not good with it in little pieces or only as needed, right? Your next question might be, Well, what do I put into my revocable living trust centered estate plan? In other words, what do I change?
What do I actually title in the name of my trust? And that's a great question. And whoever your estate planning attorney is, they will usually provide you with several pages of instructions on different types of assets and how to transfer those assets into the name of your trust.
Assets in Revocable Trust
Let's quickly go over some items that you really do want to make sure are in your revocable living trust.
The first one is real estate, and that can include the home that you're living in. Maybe a vacation home, any rental properties that you have, maybe you have land that has been passed down from generation to generation. If you have title to that real estate, you want to make sure that it is in the name of the trust.
The next thing is we've also talked about his bank account credit union accounts your checking your savings accounts, make sure that those are titled correctly in the name of your trust. Safe deposit boxes are the next one, and we've talked about that in other videos on how hard it is to get into a safe deposit box. But if you do have one, you probably want to make sure that it is titled in the name of your trust and that the successor trustee has access to that safe deposit box.
Next is investment accounts that you might have with a brokerage or some type of financial agency. Talk with those people and make sure that you have those assets titled in the name of the trust notes payable to you. If somebody owes you money and you actually had them sign a document that says they owe you money and believe me, if you lend somebody money, you need to get it in writing because 95% of the time they won't remember or they'll just say sorry. So make sure you have.
If you loan somebody money, make certain that you got a note payable and make certain that you assign that note to your trust so that if you were to pass away, that person does doesn't just try to disappear. You want to be able to make certain that your successor trustee knows that this person owes you money and knows to make sure that they pay the money that is owed to your estate.
The next is life insurance policies. We've talked about them already, but you also want you want to make sure that the beneficiary designations, if that's what you want to do, are in the name of the trust so that those proceeds can be distributed under the terms of your trust.
The next business interests intellectual property, oil and gas, especially if you are in a state or you own mineral interest in a state that have a lot of oil and gas.
The next is personal effects. You want to make sure all that artwork, jewelry, collectibles, your antiques that you've been looking at for years and buying, you want to make sure all of that is in the name of the trust so that it can be distributed according to the terms of your trust.
Assets Maybe Not Put in Trust
That is just a very simple list of items that should be put in the name of your trust. Make sure that they are titled and that your trust actually owns those assets. But there are certain assets that you want to make certain are not in your revocable living trust.
Now let's go through that list.
IRAs and other tax deferred retirement accounts You want to really talk to your financial advisor about these type of accounts , and you might only want to make the trust the beneficiary of those accounts, but the rules have really changed in the last couple of years.
You really need to talk with your financial advisor and your CPA before you make any changes with those IRAs. The next item is incentive stock options and Section 1244 stock that you might have or any interest in those.
Again, talk with your financial advisor on how to properly allocate these type of assets. If you have any interest in professional corporations again, you need to talk with your financial advisor and your CPA. And if it's a professional corporation, then you probably need to talk with your partners in that corporation on what happens when somebody passes away or becomes incapacitated and is no longer able to participate in that corporation.
The next one is foreign assets. You know, we get a lot of people who have a vacation home or they have financial assets in other countries. The laws are different everywhere, just like we have a certain set of ever changing laws in the United States, so do other countries.
Make sure you want to make certain that any decisions you make regarding foreign foreign assets that you discuss, those with your CPA and your financial advisor because you could have huge tax consequences in both countries if you do that wrong.
Next is UTMA trust and you probably never heard of a UTMA trust before. But an UTMA trust is a uniform trust of minors act trust that basically holds money for a minor child, and those usually have a successor trustee in them. The beneficiary is usually a child, and that's why they're set up in the first place for children who get a windfall of several thousands, tens of thousands or even millions of dollars.
They want to make sure that there's not bad actors out there who take that money from those children, and we want to make sure that it's available for them when they reach the age of majority, whether that's 18 or 21.
I kind of go back and forth on this next one, and that's cars, trucks, motorcycles. The reason why is and you can probably search the internet, and there's going to be a lot of different people giving you a lot of different answers on this. The reason I kind of shy away from putting your daily driver into the name of your trust is because while it's your daily driver, unfortunately, we live in a litigious society, and when people see that you have a trust, then.
They automatically think lawsuit because they think lots and lots of money when the truth is that you have a revocable living trust because you're smart and you set up a properly funded, revocable living trust centered estate plan, but people don't see that, and they just want to automatically assume.
The other reason is that in most states, it's pretty easy to transfer a car, a motor vehicle or a boat from one relative to the other when they pass.
Check with your estate planning attorney and check with the laws in your particular state regarding what happens when you transfer those assets or what happens on how those assets transfer upon your passing.The bottom line is it's important to talk to your estate planning attorney, your CPA and your financial financial advisor. All of them together on what needs to be in your trust and what shouldn't be in your trust so that there's no adverse tax consequences. Very important to fund your trust, but you need to fund your trust properly.
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Cortes Law Firm
5801 Broadway Extension Hwy Suite 110
Oklahoma City, OK, 73118405-213-0856