The revocable Trust is a powerful and efficient estate planning tool to avoid probate and reduce estate taxes. However, it is important to understand that the Trust is only effective for those assets that have been transferred to the Trust. You can pay a fortune for a terrific Trust agreement, but if your assets are not titled in the name of the Trust, they will still have to pass through probate to get to your heirs.
However, if it’s done properly, funding will avoid probate, provide for you in the event of your incapacity and save on estate taxes.
Forbes’s recent article entitled “Don’t Overlook Your Trust Funding” looks at some of the benefits of trusts.
Avoiding probate and problems with your estate. If you’ve created a revocable trust, you have control over the trust and can modify it during your lifetime. You are also able to fund it (transfer assets to the trust), while you are alive. You can fund the trust now or on your death. If you don’t transfer assets to the trust during your lifetime, then your Pour-Over Will must be probated, and an executor of your estate should be appointed. The executor will then have the authority to transfer the assets to your trust. This may take time and will involve court. In many cases, it defeats the purpose of your estate plan. You can avoid this by transferring assets to your trust now, saving your family time and aggravation after your death.
Protecting you and your family in the event that you become incapacitated. Funding the trust now will let the successor trustee manage the assets for you and your family, if your become incapacitated. If a successor trustee doesn’t have access to the assets to manage on your behalf, a conservator may need to be appointed by the court to oversee your assets, which can be expensive and time consuming.
Taking advantage of estate tax savings. If you’re married, you may have created a trust that contains terms for estate tax savings. This will often delay estate taxes until the death of the second spouse, by providing income to the surviving spouse and access to principal during his or her lifetime while the ultimate beneficiaries are your children. Depending where you live, the trust can also reduce state estate taxes. You must fund your trust to make certain that these estate tax provisions work properly.
Remember that any asset transfer will need to be consistent with your estate plan. Your beneficiary designations on life insurance policies should be examined to determine if the beneficiary can be updated to the trust.
You may also want to move tangible items to the trust, as well as any closely held business interests, such as stock in a family business or an interest in a limited liability company (LLC). Ask an experienced estate planning attorney about the assets to transfer to your trust.
Fund your trust now to maximize your updated estate planning documents.
Reference: Forbes (July 13, 2020) “Don’t Overlook Your Trust Funding”
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