Nowadays, many people prefer a revocable living trust rather than a will as the core component of their estate plan. They appreciate the added control over assets that a living trust provides.
Nevertheless, many people make a huge error when setting up a revocable living trust that sends their estate straight into probate court: they fail to fund their revocable living trust.
Funding a revocable living trust simply means transferring title to your assets from your name to the name of the trust. With real estate, this may mean you execute a quit claim deed of the property and file the deed with the county in which the property is located. With investment accounts, it may mean sending a letter to your bank or stock broker, instructing them to re-title the account in the trust's name.
The trustee you name will manage the assets in the trust. If you have named yourself as the trustee, you will retain complete control over the assets. Many couples will form a joint living trust in which both spouses will act as trustees.
If you create a revocable living trust, but fail to transfer your assets to it, you will not avoid probate. Any assets not in the name of the trust on the day you die will have to go to probate and transferred into the trust by the court. Though your attorney will likely help you transfer assets into the trust when it is initially formed,, you (the grantor) are ultimately responsible for transferring all of your assets, including you acquire years late, into the revocable living trust. A revocable living trust is typically used along with a “pour-over will”. When you pass away, the pour-over will captures any overlooked assets and transfers them to your revocable living trust.
Funding a revocable living trust is not complicated, but it can be time-consuming. However, since revocable living trusts are now very common, you should meet with very little resistance from banks or other institutions when transferring your assets. They may even be able to provide you with easy to complete forms to make the required transfers.
The general idea is that you should transfer all of your assets to your revocable living trust, but sometimes that is just not practical.
However, the assets you typically want in your trusts include:
You will also need to add your revocable living trust as the beneficiary of most of the assets you own for which a beneficiary can be designated. This way, those assets will automatically be transferred to the revocable living trust when you pass away. However, naming a trust as a beneficiary of certain assets, like IRAs and 401k, can have undesirable tax consequences, so you should consult with an accountant or attorney when transferring assets other than those specifically listed above.
In most circumstances, transferring real estate to a trust will not create any problems at all. In fact, you may be surprised how it is easy to transfer real estate you own to your trust and to buy new real estate in the name of the trust.
Furthermore, since the trust is revocable, transferring real estate to it should not affect your mortgage at all. Moreover, taking the extra step to list the revocable living trust as the owner on your homeowner's insurance, liability insurance, and title insurance policies may make it easier for a successor trustee to carry out business for you when necessary.
If you own property in a different state, transferring it to your revocable living trust will avoid probate in that state too. Whether you own a second home, vacation property, land, or rental property, they should all be transferred to the trust so that they will avoid probate.
You don't need to transfer your car to your revocable living trust unless the car is worth a lot of money and significantly increases the value of your estate.
Other assets that probably shouldn't be transferred to your revocable living trust include:
If you are not sure if you should transfer an asset to your revocable living trust, consult with your attorney.
Personal property, such as art, clothes, jewelry, cameras, and other personal items normally don't have a formal title. So, your attorney will need to assist you in transferring these items into the trust.
First, determine if you can purchase the property in the name of your trust. If not, you can purchase the property in your own name, then immediately transfer the title to your trust. While many people will transfer their assets to a revocable living trust when it is first formed, they often fail to diligently transfer newly purchased assets into the trust.
A properly funded revocable living trust can allow your estate to avoid probate, saving your family the time and expense involved in the probate process. To learn more about funding a Colorado revocable living trust and to ensure that your trust is funded properly, consult with our Colorado trust attorney via the contact form below.