Probate is a legal process whereby the court transfers title of a deceased person’s assets to their heirs. A revocable living trust is a written legal document used both to manage property during the lifetime of the person who signs it and to distribute that same property upon their death. If the trust is properly drafted and funded, the heirs of the trust will avoid probate on the property owned by the trust.
Avoiding probate saves money, time, and frustration. While it is true that in some cases probate can be used to good advantage to protect an estate, most folks are better served by avoiding probate altogether. It cannot be done with a simple will. It can be accomplished through using a living revocable trust, but only if written and used correctly.
Most Living Revocable Trusts Fail
Unfortunately, many folks who set up a living revocable trust do not avoid probate with their trust. Their families go through probate just like those without a trust. Their lawyers get the big fees for writing trusts, and then they get the probate fees too.
How does this happen? Most failures are due to one of three problems:
- The living revocable trust is not written properly. A number of years ago, Fortune Magazine reported that only one percent of American lawyers could draft a good living revocable trust. There are many details and provisions that should be carefully spelled out in order for the trust to be effective both before and after your death.
- An attorney mistakenly drafts a Testamentary Trust. A testamentary trust is created as part of and by a will probated as part of that will. Because it is formed by the will, and the will has no force until after it has been probated, no property is moved into a testamentary trust until after you have died and probate is finished. Folks who sign a testamentary trust thinking they are avoiding probate like they would with a living revocable trust will be disappointed.
- The trust was never funded. When the trust is unfunded there will be a probate when property passes through the estate.
Funding a Living Revocable Trust
To fund a living revocable trust and avoid probate, your assets must be transferred into the trust’s ownership. You should transfer any assets that require your signature to move ownership. . This includes bank accounts, brokerage accounts, safe deposit boxes, and real property. Each asset needs to be transferred into the trust. For instance, to transfer real property you can use a warranty deed or its equivalent. To transfer bank accounts or safe deposit boxes you will need to sign new signature cards at the bank as trustee of the trust. For more details, see https://www.legalees.com/how-to-put-property-in-a-trust/ Make sure you do so properly, with the full name of the trust.
Don’t worry–this does not mean you lose control of those assets. You still have control because with a living revocable trust, as long as you live, you remain the manager or “trustee” of the trust. As manager of the trust you still have full control over all of the assets, just like you did when they were held in your name instead of the trust’s name. But because the living revocable trust owns the assets, when you die the owner didn’t die. That means that there does not need to be a probate, because the trust will still have a manager. An appropriately drafted trust document names the new trustee who will take over at your death.
This new “successor trustee” of your trust will have full authority over the assets and can manage them without any court, aka probate, interference. This is a neat legal trick. It will not cost your heirs the extra money or time like going to court for probate would. A living revocable trust works really well, provided you use the trust during your lifetime and follow all of the rules that allow the trust to avoid probate.