Estate plans sometimes can fail for lack of funding
Jessica and Rob were conscientious about planning for their future. From the time they got married, they were careful about saving for retirement; they started a college fund for their daughter before she was born.
So, naturally, when they met with their estate planning attorney, they made sure to discuss all their options and finally settled on a Revocable Living Trust. This would let them avoid the expense and hassle of probate, and allow them to handle their affairs privately if one of them passed away.
Once their documents were prepared, they sat down with their attorney and signed the Trust agreement, along with other estate planning documents, including a pour over will, a health care power of attorney, and a durable financial power of attorney. Then, they breathed a sigh of relief, thinking everything was in place.
Tragically, a few years later, Jessica passed away, and Rob found out how wrong they had been. You see, they hadn't realized that in order for their Revocable Living Trust to be effective, their property needed to be titled into the Trust. This process is called funding the Trust. Unfortunately, Rob and Jessica had never taken this step.
Their home was held in joint tenancy, so it passed directly to Rob as the surviving joint tenant. The same was true of their joint checking account and one of their savings accounts. Unfortunately, Jessica had another checking account and several other assets titled in her name alone.
This meant that these assets had to go through probate, by way of the pour over will, in order to pass to Rob and Jessica's Trust. Not only was this expensive and time-consuming, it was emotionally draining for Rob at a time when he was already grieving the loss of his wife.
When you have a Revocable Living Trust, funding your Trust is an essential part of the estate planning process. Most, but not all, of your property should be transferred into your Trust. Notable exceptions include:
• Retirement accounts. Funding your retirement accounts into your Revocable Living Trust would trigger adverse income tax consequences. However, your estate planning attorney may advise you to designate your Trust as the beneficiary of these accounts.
• Custodial accounts. UTMA and UGMA accounts should not be funded into your Revocable Living Trust.
• Motor vehicles. In some states, the difficulties involved in funding your car into your Trust make it better to keep the car titled in your own name.
Often, when you refinance real estate, your lender may require that you remove title from your Trust before the transaction. This should not be a problem. Your attorney will simply prepare a deed transferring title from the Trust to you as an individual. Just remember to sign a deed transferring title back to the Trust as soon as you complete the refinance transaction.
A good estate planning attorney will tell you how to properly fund your Trust, or will include the funding of your Trust in his or her fee.
It's important to remember that estate planning is a process. Throughout your life, your circumstances will change. This includes acquiring new property. Periodically, you'll want to review your Trust to make sure it's properly funded so that you reach your carefully made estate planning goals.
Larry Deason is a Yuma attorney who is a member of the American Academy of Estate Planning Attorneys. For more information or to contact him about his public seminars, call 783-4466 or visit www.deasonlaw.com.