Many individuals who have set up an estate plan use a tool referred to as a “revocable trust” (sometimes called a “living trust”). One of the primary benefits of using a revocable trust is to help individuals avoid the need for court oversight of the distribution of their assets after death (a process referred to as “probate”).
Here’s how this type of estate plan works: first, an individual sets up a revocable trust, and then takes steps to transfer assets (such as bank or brokerage accounts) into a trust. This way, at death, there are no assets remaining which are titled in the individual’s sole name, and therefore no assets which need to be distributed via the probate process. Instead, the terms of the trust state how the assets are to be divided after death.
Compared to probate, revocable trusts generally are more private, require less interaction with the court system, and can often save an individual’s heirs a fair amount of time and money in wrapping up their loved one’s affairs. A revocable trust sounds great – so what’s the catch? Unfortunately, many individuals who use a revocable trust as part of their estate plan forget that in order to obtain the full benefit of this tool, they need to transfer all of their assets into the trust.
It’s not uncommon for a family to call their attorney after the death of a loved one, only to find out that the deceased individual left some of their assets outside of the trust, and probate is still required to transfer those assets to the heirs. In some cases, an individual who has only partially funded their revocable trust will make things even more complicated than if they had not utilized a revocable trust in the first place, and had just used a simple Last Will and Testament.
There are a couple of types of assets that clients frequently neglect to transfer into their trusts. Motor vehicles are often overlooked by clients when transferring their assets into their trust. This is primarily because they tend to be less valuable than investments or real estate, so clients don’t prioritize the transfer of their vehicles into the trust – plus, how many people do you know would relish the idea of making a trip to the Motor Vehicle Administration to complete the transfer! However, the MVA has relatively recently added the option to their website to add a beneficiary to the title of vehicles. This ensures that upon death, probate is not needed to transfer the vehicle to an heir. The beneficiary can be an individual, or can be a revocable trust. Of course, this is an option that works best when used as part of a comprehensive estate plan which addresses disability planning. Even so, this has been a great benefit to clients who neglect to transfer their vehicles to their trust in the hopes of avoiding a trip to the MVA!
Another asset frequently left out of trusts is U.S. Savings Bonds, which often were issued before online accounts were available, and the bonds are now sitting forgotten in a closet or safe deposit box. Many clients find the idea of retitling these bonds to be particularly confusing. However, it is now possible to transfer savings bonds to online accounts held with TreasuryDirect, and their website provides specific instructions for how to do so. As an added bonus, the online accounts also make any future transactions with savings bonds much easier to manage.
Often clients will transfer all of their assets into a revocable trust, but intentionally leave their personal checking accounts outside of their trust. Usually, this is a decision made when the individual does not want to bother with transferring their automatic deposits and bill paying to a new trust account. While it is usually preferable to transfer all assets into a revocable trust, individuals who are particularly reluctant to transfer their checking accounts may wish to ask their bank whether it is possible to add their revocable trust as a “payable on death” (or “POD”) beneficiary on the bank account. As long as this option is used as part of a comprehensive estate plan, it can be a great help to many individuals who wish to keep their personal checking accounts in place, while ensuring that their overall estate planning goals are maintained and that probate can be avoided upon death.
Revocable trusts can be a great option for many people, but will work best for those individuals who are committed to making sure that their assets are transferred into the trust, and then make this process into a priority. If you have a revocable trust and still haven’t gotten around to completely funding it, we encourage you to make this your new year’s resolution – that way, 2019 will be the year that you cross this major item off of your to-do list!
For questions about this article, or any other Estate Planning related matter, please contact an attorney in our Estate Planning practice group.