It’s useless, just an empty vessel, if you overlook this vital step, or if you acquire new assets over the years that you neglect to transfer into the trust’s name, and this can prompt a variety of problems.
The Need for an Ancillary Probate
Ancillary probate involves two separate but simultaneous probate proceedings in two or more different states or jurisdictions for the same estate. Your heirs and beneficiaries might have to deal with two or more probate processes if you neglect to fund assets into your trust. Your loved ones will have to open probate both in your home state and in each additional state where you also own property if you own real estate in a separate state from that where you were living.
Unnecessary Estate Taxes
An AB trust is an estate-planning mechanism by which the first spouse to die establishes an “A” trust to provide for the survivor for life, and a “B” trust to provide for descendants. AB trusts that you might have established under your trust can’t be funded if all your accounts and property are owned as joint tenants with rights of survivorship, or as tenants by the entirety with your spouse. This can result in estate taxes that would not otherwise have been due. Your beneficiaries won’t be able to take advantage of important estate and income tax strategies or asset protection if you fail to update the beneficiary designations for your life insurance and retirement accounts to coincide with the terms of your trust before you die.
A Conservatorship for Minor Beneficiaries
Minors can’t legally own property they inherit. The successor trustee of your trust would be authorized to manage it for them until they come of age—but only if you place those inheritances in the name of your trust. Otherwise, an adult will have to go to court and ask to be appointed as your child’s conservator so they can oversee this property on their behalf until the child reaches the age of majority.
You Might Need a Conservator
You can name a successor trustee for your revocable trust to step in and manage it and your financial affairs for you if you become mentally incapacitated. But they can’t manage assets that are owned in your individual name outside your trust. Your loved ones would have to establish a court-supervised conservatorship so they can manage your assets if a time comes when you can’t do so yourself.
Create a Pour-Over Will
An easy remedy can avoid many of these complications in the event of your death. You can create a “pour-over” will when you create your trust, directing that any assets that have been inadvertently admitted from your trust should be directed into it at the time of your death. The executor you name in your pour-over will makes this transition of your property. These assets would still have to go through the probate process to get from your sole ownership into the ownership of your trust, but then they could be distributed and dealt with according to your trust’s terms. NOTE: State and local laws change frequently and the above information might not reflect the most recent changes. Please consult with an attorney or tax advisor for the most up-to-date advice. The information contained in this article is not legal or tax advice and it is not a substitute for legal or tax advice.
