How to Fund Your Revocable Living Trust
How to Get the Ownership Registration of Various Asset Types Changed to Your Revocable Living Trust
By John H. Robinson, Financial Planner, May 28, 2023
Failing to fund one’s revocable living trust is one of the most common mistakes/oversights we catch in our comprehensive financial planning reviews. Part of the problem is that people often mistakenly believe that the act of drafting the documents completes the estate planning process. Nothing could be further from the truth.
Why Don’t Consumers Fund Their Living Trusts?
I have lost track of the number of times clients have shown me thick estate planning binders given to them by their estate planning attorneys upon completion of drafting the documents that have never been touched since the day they left the attorney’s office. Let me be perfectly clear – If you drafted a revocable trust but never registered any assets in the name of the trust, the document is essentially useless.
I estimate that roughly half of the living trusts we see have never been funded. Of the remaining 50%, a majority are not fully funded to the extent they should be. For instance, we routinely see clients who have taken the time to register their primary residence in their trust but have not added their other major assets because they either did not want to change the existing ownership structure or did not know how to preserve the existing ownership while still transferring it to a trust.
For example, we have a client in Massachusetts who has a business that operates as an S-Corp, a boat that is registered in an LLC based in Delaware, two rental properties owned by LLCs and an inherited property in Connecticut owned jointly with two siblings as tenants-in-common. For each of these assets, there are valid reasons (e.g., liability protection) to retain the current forms of ownership. What he did not know was that he can make his trust the primary owner of the LLCs, have his trust own the shares of his S-Corp, and have his trust retain his ownership interest in the property he owns with his siblings.
What are the Consequences of Not Funding My Revocable Trust?
A potential/probable consequence of not transferring the underlying ownership of these assets to one’s trust is that these assets may get stuck in probate after the owner passes away. This may be particularly complicated and drawn out (i.e., expensive) if some of the assets are in different states or countries. Although getting the ownership of these assets into the trust may seem complicated, half the battle is recognizing the problem exists. Changing the ownership of these assets is not as complicated as it sounds.
How To Get Different/Non-Traditional Asset Types Into Your Trust
To help with this, here is a link to an extremely handy guide that was passed along to us by our friends at Estate Guru. The guide contains specific instructions on how to re-register a slew of different types of assets including aircraft, burial plots, mineral rights, Patents & Trademarks, Timeshares, etc.
YOUR SPECIFIC ASSET FUNDING GUIDE
John Robinson is the owner and founder of Financial Planning Hawaii and Fee-Only Planning Hawaii. The views expressed in the piece are for general consumer education and should not be construed as specific legal advice. For specific legal advice, readers are encouraged to consult with an attorney.
