Florida Certified Elder Law Specialist
Nationally Certified Elder Law Attorney
Florida and New York Bar
What is the difference between a revocable trust that prevents your estate from going through probate, and a revocable trust that's just a stack of papers?
The answer: funding your revocable trust. This is an essential step you must take once the ink is dry on your documents. Without proper funding, your estate cannot avoid probate.
Funding means transferring your assets into your revocable trust. (The revocable trust is also known as a living trust.)For example, if Mary Smith has a bank account in the name of Mary Smith, after executing her documents she would request that the account be retitled in the name of the Mary Smith Revocable Trust, Mary Smith, Trustor.
Any financial assets not in your trust that does not have a a co-owner with right of survivorship, or a named beneficiary, will end up in probate, regardless of how beautifully crafted your revocable trust.
As a Florida estate planning lawyer, I am often consulted by people who want me to review their revocable trusts that have been drafted elsewhere. Occasionally I’ll discover the trust was never funded, or funded improperly. Fortunately, these are people who I can help to rectify their mistake. Think of all the folks out there with unfunded trusts or improperly funded trusts who never follow up with an experienced estate planning attorney. Like the emperor with no clothes, they think they're protected, but they're not. When they pass away and their families find out the truth, the mistake will no longer be rectifiable. The family will end up dealing with the hassle and expense of Probate Court.
Your estate planning attorney should advise you about the funding process. He/she should tell you which of your assets belong in your trust, and as importantly, which do not. For example, putting a qualified plan (e.g., IRA, 401k or 403b) in your trust would trigger undesirable income tax consequences, even though the asset would still avoid probate because it has a designated beneficiaries. Life insurance is another example of an asset that typically does not belong in a revocable trust.