One of the biggest misconceptions about estate planning is that once you have a Will or a Trust prepared, your estate will automatically avoid probate court when you die. In reality, a Will does not help avoid the need for probate. A Revocable Trust can be used to simplify estate administration and keep assets out of probate court, however in order to work effectively, the Trust must be “funded.”
In other words, the Trust agreement only controls assets inside the Trust. You can fund your Revocable Trust in various ways. The most direct way is to retitle assets such as real estate, bank accounts, and investment accounts into the name of the Trust. Doing this means the Trust is the owner of the transferred property, and the person(s) named as trustee have the authority under the Trust agreement to hold and manage the assets during your lifetime.
You can also make the Trust the beneficiary of assets at your death, using beneficiary designations on life insurance, annuities, retirement accounts, and even on bank accounts and non-retirement investment accounts.
When you create a revocable trust, your estate planning attorney may also recommend a special type of Will called a ‘pour-over will’ as a companion document to the Trust agreement. Instead of naming your intended beneficiaries directly in the Will, a pour-over will names the Trust as the beneficiary, ‘pouring’ assets into the Trust when you die. This should generally not be relied on as your primary Trust funding mechanism, as it may be necessary for assets to pass through probate in order to get to your Trust with this option.
Your estate planning attorney can provide information, recommendations, guidance, and assistance on funding your Trust, making you aware of potential tax considerations with various decisions and ensuring that each piece of your estate functions the way you intend. To learn more, contact The Estate Planning & Legacy Law Center today!