Estate planning serves several purposes, one of which includes avoiding probate. In Utah, most estates will be required to engage in the probate process if they do not have a trust or if they failed to transfer all of their property into the trust during their life.
Depending on where you live, probate can be more or less difficult, but it is always an unwelcome hassle after the death of a loved one, especially when it can so easily be avoided by hiring a competent attorney. Utah, for example, has adopted the relatively friendly Uniform Probate Code, but even its probate process usually ends up costing thousands of dollars and taking months of needless time in court.
No matter how friendly a state’s probate laws are, probate is generally a process to be avoided because (1) it places an unnecessary burden on survivors and (2) makes public all the details of your estate. When you fund your trust by transferring your property interests to your trust during life, you effectively remove the value of those assets from your estate at death, thus avoiding probate completely.
So, how do you fund your trust?
As alluded to above, funding your trust is the process whereby you transfer property, real and personal, to your trust.
Real property is transferred by executing a new deed listing the trust as the grantee or new owner. Bank accounts are transferred by reregistering the account in the name of the trust. Personal property, such as furniture, jewelry, etc., can be transferred using broad language within the trust indicating a full and complete transfer of all tangible personal property.
While no two estate plans are identical and each one should be specifically tailored to meet individual needs, our recommended estate plan almost always involves a revocable trust and a pour-over will.
During your life, all property should be transferred to the trust. At death, a properly drafted pour-over will with a residuary clause makes sure that any property not transferred to the trust during life pours over into the trust and is transferred at death.
So, if the pour-over will contains a residuary clause, is it even necessary to transfer property to the trust during life?
The answer is a resounding YES!
Recently, we assisted a client whose parents, decades ago, went through the steps of creating an estate plan consisting of a revocable trust and pour-over will. The parents properly transferred title to all then owned real and personal property to the trust. Several years later, they purchased a family vacation home but failed to transfer it to their trust. When the husband died, the wife transferred the husband’s interest in that property to the trust, but never transferred her own.
When she passed away, her 50% ownership interest in the property became subject to the probate laws of the state where the property was located. The messy result is her heirs are now required to initiate probate in another state and her 50% interest will likely be divided into equal shares among all her surviving children. This mess could have been avoided in its entirety had the couple transferred their ownership interest in the cabin to their trust during life.