Revocable Living Trust – Why Am I In Probate Court?
The revocable living trust (“living trust” for short) has numerous advantages. In general, a living trust is a trust that goes into effect while its creator (known as the “grantor” or “settlor”) is living in which the creator retains the right to amend or revoke. The settlor “funds” the living trust by transferring assets to the trust while the settlor is living or by naming the trust as beneficiary of specific assets (typically bank or investment accounts) at death. One advantage of the living trust is that by transferring assets to the living trust, the trust assets will pass to the trust beneficiaries without the delay, inconvenience and expense of probate court administration. Unfortunately, sometimes the assets are not transferred to the living trust as intended and remain in the settlor’s estate at death.
A financial advisor recently asked me about the percentage of living trusts that are never funded. I responded with these thoughts:
In my experience, living trusts fall in 3 funding categories:
- Unfunded trusts. I don’t see many of these. Maybe 10%. If a trust is completely unfunded, the lawyer did not explain what needed to be done or the client did not understand what needed to be done. I realize lawyers sometimes advise not funding the living trust until the client dies, but I don’t advise this.
- Partially funded trusts. I see a lot of these. Maybe 50%. These are situations where the intent was to include only out of state real estate or some other asset in the trust, or one or more assets were left out of the trust because a beneficiary designation was overlooked, or an asset was forgotten, or assets placed in the trust leaked out of the trust over time, or new assets were acquired in the client’s individual name instead of in the trust name. So they end up in probate court to finish the job.
- Fully funded trusts. These are my people. Maybe 40%. They funded their trusts and understood there would be some maintenance involved to keep everything in the trust.
If you have created a living trust that is not properly funded, or you are trustee of a living trust and are not sure whether it is properly funded, make an appointment with my office to review your concerns and restore your peace of mind.