Avoid probate by funding revocable trust and keep assets and family out of Probate Court
- How to avoid sending your loved ones and your assets through Oklahoma probate. Today, we're gonna talk about how to avoid sending your loved ones and your assets through the probate process. Nobody wants to do that. Nowadays, many people are using a revocable living trust instead of a will or joint ownership as the foundation of their estate plan. When properly prepared, a living trust, a revocable living trust, will avoid the public, costly, and time-consuming court processes of conservatorships, guardianships, due to incapacity, or even probate after death.
Unfortunately, many folks will start the estate planning process by coming to us or another estate planning attorney, but still end up sending their assets and their loved ones right into the court system for probate. Why does this happen? Well, the reason is because they fail to fund their trust. And you've heard me talk about this many times in other videos. Funding a trust is simply the process of transferring assets from your name into your trust. You should also change most beneficiary designations to your trust.
Funding is accomplished in several different ways, and we're gonna talk about a few of them today. First is changing the title of your asset from your individual name to the name of your trust. For example, let's say we're working on the Jackson and Samantha Spencer estate. They'll change it from Jackson and Samantha Spencer to the Jackson Spencer and Samantha Spencer trustees of the Spencer revocable living trust dated May 12, 2020. Make sense?
The next is assigning an asset without a title to your trust, such as artwork, jewelry, collectibles, and antiques that you have into the name of your trust. The next thing is changing the primary beneficiary or contingent beneficiary of your asset to the name of your trust. And as always, you should consult with your CPA and your estate planning attorney before making any of these changes.
But what happens to your assets left outside of your trust? In other words, assets you forget to put into the name of the trust. For many people, avoiding conservatorship or guardianship and probate are the main reasons they set up a revocable living trust, right? I think you would agree with me on that.
Unfortunately, you may believe that once you sign your trust agreement, you're done. In fact, I think many people believe that once they sign their trust, they are completely done. But if you fail to take the next step to change titles and beneficiary designations and then you become mentally incompetent or you pass away, your assets and your loved ones will end up in probate court for any assets that are not in the trust.
So which assets should and should not be funded into your trust? And again, you need to talk to an attorney or a CPA. Generally, you will probably want to fund the following assets into your trust. I say generally because you should always consult with your estate planning attorney or your CPA first.
But generally, oh my gosh, how many times can I say generally? However, generally, these are the assets you want to put into your trust. The first is real estate, homes, rental properties that you have, vacant land, and even time-shares. But if you have a time-share, oh my gosh, stay away from them.
Bank and credit card union accounts, checking accounts, savings accounts, and even certificate of deposits. But you need to be careful with certificate of deposits because you can trigger the early withdrawal fee. Safe deposit boxes, which I have videos on the dangers of safe deposit boxes up here.
If you have one, watch those videos. Other accounts are investment accounts, brokerage accounts that you might have. But again, check with your financial planner, your CPA, or your estate planning attorney before doing this. Another thing is notes payable to you. If you've loaned anybody money and you actually have a loan agreement, that needs to be changed to the name of the trust.
Another item to put into your trust is life insurance if you don't have an irrevocable life insurance trust. And if you don't, you probably should talk to your estate planning attorney about getting one. The next is business interests. If you have any business interests, you might wanna put them in the name of your trust. The next are intellectual property and oil and gas interests that you might own, especially if you're in an oil-rich state.
Personal effects like artwork, jewelry, collectibles, and antiques should also be put into your trust. Now those don't have title, but what we'll do is just do a document that transfers them. However, on the other hand, you'll probably not want to fund the following assets into your trust.
And these include IRAs and other tax-deferred retirement accounts. Only the beneficiary designation should be changed, and again, you should talk to your CPA before you do a change with your IRA, especially recently with the changes that they did at the end of last year. Also, stock options should not be put into your trust. And again, consult with your CPA.
Another thing that should not be in your trust is any interest you have in a professional corporation. You really need to look at the operating agreements for any of that. And any foreign assets, those could trigger tax consequences if you put 'em into your trust. You also probably should not put your cars, trucks, scooters, motorboats, because most states allow assets, including vehicles, to pass outside of probate, and it's usually just a bad idea to put your daily driver into your trust.
Because if you get in a car accident, somebody's gonna see that you have a trust. It's important to work closely with your estate planning attorney to determine what should go into your trust and what should stay out of your trust. Remember, the whole goal is to avoid probate. Before purchasing new assets, consult with your estate planning attorney or your CPA to find out how title of the account or the deed or whatever the property is should be titled in, whether it should or should not go into your revocable trust.
What are the benefits of funding your trust? Well, that's the whole reason you're doing this in the first place, right? Or at least one of the main reasons. Funding your trust makes it possible to obtain the best result from your trust-based estate plan. Your incapacity trustee, instead of a conservatorship or a guardianship judge, will take control of your trust assets if you become mentally incompetent or if you end up in the hospital like many people are right now with the pandemic.
Your settlement trustee, instead of a probate judge, will take control of your assets after your death. In other words, they will be able to make distributions and your family will not have to go to court for six to nine months at a minimum. Your trust will also be easier to update as your wishes and your circumstances change, instead of doing things piecemeal through joint ownership, payable on death, or transfer on deaths accounts or individual beneficiary designations.
Believe me, we've seen it all, and a lotta times, people just simply forget to make changes to their beneficiary designations from like 1980. Your final wishes will also remain a private family matter instead of being publicized in the local probate court records and in the local newspapers where anybody, including your nosy neighbor Nelly, will have access. Your incapacity or settlement trustee will have direct access to your trust assets without the need for obtaining a court order. That's huge.
Your incapacity or settlement trustee will still be able to manage, invest, sell, and reinvest your trust assets without the court's intervention. Guys, that one is a big one. So the bottom line on trust funding is that many people like the cost and time savings, plus the added control over assets of a living trust, but remember, and this is extremely important, unfunded trusts are not worth the paper that they're written on. If you've got a revocable living trust, make certain that it is funded.
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