FUNDING YOUR REVOCABLE LIVING TRUST
If you have an existing estate plan, you are probably already familiar with the benefits of creating a Revocable Living Trust. One of the biggest advantages of a Revocable Living Trust is the ability to avoid probate. Probate is a court process when a person dies. It can last for several months or longer depending on the size and complexity of the estate. Probate is time consuming and can be costly. In addition, probate proceedings are a matter of public record. Anyone interested is free to view and copy any probate documents filed with the court.
In comparison, a Revocable Living Trust is not subject to probate. The time it takes to settle the trust after your death will generally be much shorter than the time it would take to probate your estate. The trust is private since it does not need to be filed with the court. A Revocable Living Trust avoids probate provided that the trust is properly “funded.” To “fund” a trust is to transfer title of your assets into the name of your trust. If you do not take the time to properly fund your Revocable Living Trust, any assets left out of the trust may need to be probated upon your death. This does not mean that every asset you own should be placed in the name of your Revocable Living Trust. In some situations, your estate planning attorney may advise you not to transfer certain assets to your trust. It depends on the type of assets you own, who the owners are, and whether there is a beneficiary named. Therefore, it is important to consult with a knowledgeable estate planning attorney before transferring any asset to your Revocable Living Trust to determine whether the transfer is in the best interests of your overall estate plan.
When your Revocable Living Trust is created, your estate planning attorney can assist you with funding your trust. The attorney should provide you with detailed instructions on how to change title to any stocks, bonds, bank accounts, and other investments that you and your attorney determine should be placed in the name of your trust. Transferring title to your Revocable Living Trust for these types of assets is relatively easy. It can generally be done by submitting a written request to the financial institution holding the account. Transferring title for real estate to your Revocable Living Trust usually requires more work. Your attorney will need to prepare a conveyance document, such as a deed or assignment of lease, and record this document at the State of Hawaii Bureau of Conveyances.
Once you create a Revocable Living Trust, you may think that your estate plan is complete and that you have taken all necessary steps to protect your loved ones from probate. This may be true if you have taken the time to properly fund your Revocable Living Trust. Sometimes there is a problem when you buy property in your own name after the trust is created. This is particularly important when you buy out-of-state real property. Remember – any asset not titled in the name of your trust may need to be probated upon your death. If your estate needs to be probated, you may assume that the probate will be filed in the state where you resided at the time of your death. However, any out-of-state real property owned in your individual name will need to be probated in the state where the real property is located. Therefore, if you own real property in two or more states in your individual name, you run the risk of having multiple probate proceedings in these states when you die. This can result in significant delays and cost to your loved ones. If you do acquire out-of-state real property and wish to transfer title to your Revocable Living Trust, you should consult with an attorney in that state or country. Find someone who is experienced in preparing the conveyance documents needed to transfer title of the real property to your trust.
This column is for general information only and is not tax or legal advice. The facts of your case may change the advice given. Do not rely on the information in this column without consulting an estate planning specialist.