Funding a Revocable Trust?
The biggest mistake that we see people make is failing to fund their revocable living trust. They will go through the expense and really a lot of time in going to their estate planning attorney, filling out forms and questionnaires, meeting with their estate planning attorneys one, two, three times to get that estate plan, that revocable living trust, exactly the way they want it to distribute the assets to exactly the people and to the charities that they want their assets to go to.
Then they leave the attorney's office. And the first thing that they do is. Nothing, absolutely nothing. If you go to an estate planning attorney and you have a revocable living trust set up by them, they are going to emphasize how important funding your trust is.
Do this now if you have a revocable living trust.
What does it mean to fund your trust? Well, it simply means to title all of your assets. Anything that you have that has a title on it needs to be must be in the name of your trust. That is absolutely vital for your revocable living trust to work as it is intended to do, as it should work with all the hard work that you put into it in creating it with your estate planning attorney.
If you fail to fund your trust or you leave an asset out, that particular asset is going to have to be probated. What kind of items need to be into your Revocable Living trust? I just said anything that has a title to it. Once you've passed away, anything that has a title to it is generally considered a probate asset. So that means that it is going to have to be probated in order for it to go to your heirs.
The whole reason you set up a revocable living trust is you did not want your estate to go through the probate process. Right? That means that before you pass away, you need to make a list and your estate planning attorney will help you with this.
Make a list of all your probate assets that could be cars, rental homes, the home that you live in, bank accounts, financial accounts a boat the motor to about all of those things have titles on them. And they need to be placed into the name of your trust.
If they're not, they become probate assets after you pass away. It's essential that you make a list with your estate planning attorney of all of those items that have a title to them and make certain that they are changed to the name of your trust.
Let me give you an example of how this can go absolutely wrong. And I've said it in other videos as well. Let's look at the example of a house. Now, if you go to your estate planning attorney, they're going to have a questionnaire that they're going to go over with you and it's going to require you to list all of the real estate that you own.
For example, let's just say that you have one home, you have the home that you live in with your husband or wife. And as part of the revocable living trust package that they do, they are going to make certain that that home that you're living in is titled Into the Name of the Trust.
At the same time that you are executing the revocable living trust documents. They could probably do this either with a quick claim deed or a general warranty deed, whatever the preference is of the client. We changed the title at the time that we sign the Revocable Living Trust of their house that they're living in from their personal name to the name of their trust.
If their personal name was Johnny and Sandra Smith and now they have a revocable having trust, it is probably going to be called the Johnny Smith and Sandra Smith revocable living trust. When we change the title, we're going to change the title from their name to Johnny Smith and Cara Smith, trustees of the Johnny Smith and Cara Smith Revocable Living Trust.
Then we file that with the county clerk, the property clerk in whatever jurisdiction you're living in. And that effectively changes the title from their name to the name of the trust when they pass away that House is no longer a probate asset because it is actually owned and titled In the Name of the Trust.
Where this can go wrong is and where I see it going wrong, whether they come to our office or they've been to another estate planning, an attorney or if they've even tried to do it on their own, is where they start off correctly. They put that house that they're living in into the name of their trust, and then they get excited.
They want to either upsize or they want to downsize where they live. When they do that, they forget, for whatever reason, to tell the title company that they have a trust.
When they sell the house, the money from that goes to them and they use that money to purchase a new house. The problem is that they don't title that new house in the name of the trust.
They just title it under Johnny and Cara Smith. And then when they pass away, that now becomes a probate asset.
What happens because it's now a probate asset and not a trust asset? Well, that probate asset, after you guys pass away now needs to be probated.
Most likely, if your estate plan was done correctly, you have what's called a pour over will that says any probate asset is to be probated and go down to the courthouse and put into the name of the trust for distribution according to the terms of the trust.
You might say, well, that's not a problem. It'll still be distributed the way I wanted it to be. That's true. That's absolutely true.
The problem is it's going to have to be probated and probates are expensive. We have seen probates cost anywhere from three thousand eight hundred dollars, upwards of ten thousand dollars. And that's if nobody is fighting.
Your estate is going to have to pay three, four, five, ten thousand dollars to do something that you could have very easily done with a pen stroke when you went to purchase that second home at the title company. So it's up to you what you want to do.
I can probably guess that most of you would rather just sign a new title, transferring your second home into the name of trust for about 20 bucks a filing fee instead of having your state pay thousands of dollars later on.
That is the big problem with probate assets when you have a trust and why people fail to fund their trust. Don't do it. Don't fail to fund your trust.
Look at all of those assets and see how they are titled. Then right now, make a list of everything that you own and check to see what the title says. Is it titled in your personal name or is it titled In the Name of Your Trust?
If you have questions regarding certain types of assets, then call your estate planning attorney and ask them whether or not they should be put into my trust.
There are certain assets out there like IRAs that you may or may not want to title into your trust, especially with new rules that have come down in the last year or so regarding IRAs.
The bottom line is, don't fail to fund your trust. Make certain that all of your assets are in the name of your trust, and that when you pass away, you are not leaving any probate assets out there.
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Cortes Law Firm
5801 Broadway Extension Hwy Suite 110
Oklahoma City, OK, 73118