Estate planning is the process of preparing documents to plan for the incapacity and death of an individual. Incapacity planning allows an individual to appoint family members or close friends who have the power to make health and financial decisions in the event of incapacity.
Failure to have such documents in place could lead a family to be required to file a guardianship in the probate court to obtain such authority to act on an individual’s behalf. Estate planning documents also include the last will and testament and the revocable living trust, which dictates who and when assets will be distributed to beneficiaries. The revocable living trust (“Trust”) can also provide for spousal support, as well as providing support to family members (such as children) using the assets in the revocable living trust. However, one of the major reasons our client’s estate plans fail is the failure to correctly fund the trust with assets.
Definition of Funding a Revocable Living Trust With Estate Planning
Once a revocable living trust is created, with the proper execution formalities, the assets intended to be owned by the revocable living trust need to be transferred into the trust. In other words, the trust can be viewed as an empty bucket and the assets must be moved into that empty bucket for the trust provisions to control the timing and manner of their distribution.
Estate Planning 101: What Occurs to Assets that Are Not Funded into a Revocable Living Trust
Any assets that are not funded (or transferred) into a revocable living trust would be subject to court supervised probate administration. Probate administration requires the family of a decedent to file an application with the court to ask for a court order to distribute assets that have remained in an individual’s name at death. While creating a revocable trust is completed for the purpose of avoiding the necessity and stress of probate, if an asset is not funded into the trust using the appropriate transfer documents, then that purpose fails. That is why funding your trust is just as important, if not more, than the initial execution of the revocable living trust.
Explanation of the Different Methods to Fund Common Assets
Each different type of asset has its own funding requirements. For instance, privately held business interests require an assignment to be executed from the individual owner(s) to the revocable living trust. Publicly held stock and bonds held in brokerage accounts requires the execution of certain forms to change the owner of the accounts to the revocable living trust. Another method could include having the trust listed as the payable on death beneficiary on the accounts. The institution that the brokerage account is with should have the forms and be able to assist with the transfer. Life insurance policies, retirement accounts and/or annuities require establishing the trust as the beneficiary of the accounts. Real property requires the execution of transfer on death affidavits or the execution of new deeds, both of which must be recorded in the county where the property is located. Upon recording, the real estate documents become public record. With regard to all other assets, a knowledgeable Estate Planning attorney can explain the process for funding each type of asset into the revocable living trust.
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