Creating and Funding the Revocable Trust – A Two Step Process
The first step in planning for the distribution of your estate is to contact an estate planning attorney and create a revocable living trust. Your friends and colleagues have all told you that it is a sound idea if you want your assets to avoid probate and want proper disposition of assets upon death assured. However, the creation of the trust is only half the battle. Now, you must embark on the second half of the process, funding that trust.
Funding the trust is the process of transferring the title of your assets to the trust and changing beneficiary designations to ensure they will be paid to the trust upon the death of the asset owner. Some examples of funding the trust are:
1. Designating the trust the “Pay on Death” beneficiary of a bank account
2. Designating the trust as beneficiary of life insurance contracts
3. Designating the trust as the “Transfer on Death” beneficiary of a brokerage account
4. Transferring title of a piece of real property to the name of the trust
Contrary to many beliefs, setting up a revocable trust does not entitle the grantor to the benefits of a revocable trust. If an asset has not had its title changed so that it is owned by the trust, that asset will not avoid probate. Also, be aware that a “pour over will” does not fund the trust. Those assets left to the trust in the will, still pass through probate administration before they land in the trust.
A revocable trust can fail for a number of reasons. However, the most frequent cause of trust failure is incomplete or lack of funding of the trust. Generally, the full benefit of the revocable trust can only be realized by transferring the majority of the settler’s assets into the trust prior to death. Beware of the legal advisor that suggests not fully funding your trust. Following that advice will almost assuredly land your estate in probate.