Earlier this week we began working with some new clients whose father recently passed away. The father (whose wife passed last year) had established a revocable living trust several years ago. The clients, the father’s sons, did not understand why it was necessary to probate most of their father’s assets even though he had a revocable living trust. The answer is fairly simple: The father never “funded” his revocable living trust.
One of the reasons, if not the most significant, for establishing a revocable living trust is to avoid probate. A revocable living trust accomplishes probate avoidance only if the trustmaker’s assets have been re-titled to the revocable trust. Re-titling the trustmaker’s assets to the trust is the process of “funding” a trust.
Probate law essentially provides that everything I own outright when I die must go through probate to ensure (1) that all of my legitimate creditors are paid and (2) to see that the remaining assets go to the persons or organizations that I have directed – if I have a will – or to the persons or organizations the state legislature has established through the intestacy statute, if I don’t have a will.
When I establish a revocable trust, usually my principal objective is to avoid probate. If I do not re-title my assets to the trust, my principal objective of probate avoidance will not be accomplished, because if my assets remain titled in my name alone, those assets must pass through probate pursuant to my last will, or the intestacy statute in the event there is no will.
Legally, when I re-title my assets to my living trust, I have transferred legal title to the trustee of the trust. During my lifetime, typically I am the trustee, or at least a co-trustee, of my trust – so, I stay in control of my assets even though I have transferred legal title to the trustee (a legally distinct “person” apart from me individually). Now, when I die, I don’t “own” my assets and there is no need to pass the assets through probate. My successor trustee will legally own the assets, but must distribute the assets as I have directed in my living trust document.
If you have a revocable living trust, and you have not re-titled your assets to the trust, then you have not accomplished your objective and your assets ultimately will pass through probate either at your death, or the death of your spouse if your spouse survives you.
Failure to re-title assets to the living trust also precludes the use of one of the other primary reasons for establishing a revocable living trust. If your assets are titled to your trust and you become incapacitated, your revocable trust likely contains provisions designed to provide for your care and the management of your assets in the event of your incapacity – without the need for a court supervised guardianship.
A court supervised guardianship is necessary when you are incapacitated, and thus cannot manage your own affairs, and you own assets, whether cash, marketable securities, real estate, or otherwise. A court supervised guardianship is expensive, intrusive, and all of your affairs become subject to court supervision and approval, to ensure that your rights and your assets are protected from those who might otherwise take advantage of your incapacity.
If you have transferred title of your assets to your revocable trust, then the successor trustee who you have named will, upon you becoming incapacitated, have the legal right (and obligation) to assume control of your assets, manage those assets in your best interest, and be sure that you receive proper care during your incapacity. Upon you regaining capacity, you also regain control of your living trust.
Many clients are referred to us every year and upon reviewing their existing estate planning documents we learn that they have never re-titled any assets to their living trust. In many cases, these new clients explain that no one ever told them their assets must be re-titled to their living trust to avoid probate. In other cases, the new clients will acknowledge they were told to re-title their assets, but no one told them how to accomplish the transfer, and no one offered assistance with the funding of the trust.
In our estate planning law firm, when we prepare a revocable living trust for clients, we spend a significant amount of time with the client explaining how to transfer title for each of their assets to the trust. We have a “funding coordinator” whose principal activity is assisting clients with the funding of their revocable living trust. The proper funding of the trust remains the primary responsibility of the client, but we do as much as we reasonably can do to ensure that when our clients establish a revocable living trust to avoid probate, their assets are re-titled to the trust so the client can in fact achieve that objective.
If you have a revocable living trust and you have not re-titled your assets to the trust, you may want to contact an experienced estate planning attorney or law firm (like us) to help you achieve your goal of avoiding both probate and a court supervised guardianship in the event of your incapacity.
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