Revocable Trusts have been sold by many in the estate planning industry as the panacea for all difficulties in dealing with assets when their owner dies. “If I have a Revocable Trust,” a layperson might say, “then I avoid probate.” This idea often reflects the mistaken impression that a person’s mere signing of the trust document actually changes the ownership of his assets so that they are owned by the trustee and will be dealt with privately and without a probate court’s involvement at the owner’s death.
This mistaken impression is often encouraged by the fact that, at the time the layperson signs the Revocable Trust document, the layperson often signs a new Last Will, one that complements the Revocable Trust in several ways. The new Last Will is primarily complementary because it directs the Personal Representative named in the Last Will to transfer the layperson’s assets to the trustee of the Revocable Trust. But such a Last Will (often referred to as a “Pour-over Will”) is not effective until someone files a petition in the probate proceedings of the Circuit Court asking the court to enter an order that (1) “admits” the Last Will to probate, (2) officially names as the Personal Representative the person nominated to that office in the Last Will, and (3) sets in motion a series of requirements and deadlines that may extend the proceedings for months and even years before the Personal Representative may hand to the trustee of the Revocable Trust the first asset. A person’s mere signing of a Revocable Trust agreement and a new Pour-over Last Will does nothing to avoid probate proceedings for those assets that would go through the probate process in the absence of such documents. Only assets that are already trust assets at the owner’s death, assets that do not need to be “poured-over” to the trust because they are already there, will avoid probate.
There are many kinds of assets: real estate, stocks and bonds, brokerage accounts, life insurance policies, annuities, automobiles, and so on. Each kind of asset and each asset within a “kind” will often have its own particular way of moving from an asset potentially subject to probate to an asset that is “inside” the trust at the owner’s death. Somewhere during the estate planning process that results in the Revocable Trust document and the new Last Will, one’s assets, on an asset by asset basis, must be identified thoroughly. A thorough identification is an identification that provides sufficient information to determine just how to move the subject asset “inside” the trust. Once the “how-to” plan is determined, then that plan must be implemented.
Several months ago, a widow visited my office for an estate planning review. This was the first time we had met. She and her deceased husband, who died about 12 years before our visit, had done some estate planning before he died and they each had a Revocable Trust. In connection with the settlement of the husband’s estate, the widow had done some further estate planning of her own. The purpose of our visit was a simple one, at least to her mind. She wanted me to prepare an amendment to her Revocable Trust that provided some additional gifts for her grandchildren. She brought a big file with her, however, that reflected the work she had done on her assets. I asked if I could look through the file, and she consented. But she said that all the assets were in the trust, and she was quite proud of the fact.
Among the assets that she had were some promissory notes that reflected loans that she and her husband had made to third parties. Those notes were secured by mortgages on real estate located in several Florida counties. I reviewed copies of the notes and mortgages that she had in the file. The promissory notes named her and her husband as the obligees (the persons who made the loan and are owed the money) and each mortgage securing the notes named her and her husband as the mortgagees (the persons who can foreclose on the real estate if the note is not paid). I said that if the loans represented by these papers were outstanding at her death, then probate proceedings would have to be opened. I said that the court would have to appoint a Personal Representative to collect the money owed and to otherwise deal with the notes and mortgages. To get the notes and mortgages “into” the trust, the Personal Representative would have to record certain documents in the public records of each county where the real estate that secured the loans was located. The documents would need to evidence sufficiently (1) that her husband died and she survived him, (2) that she and her husband had been married continuously from the time the parties to the loan created the note and mortgage until her husband died, (3) that she herself had died and that her Personal Representive had been duly appointed by a Circuit Court in appropriate probate proceedings, and (4) that during those proceedings the Personal Representative had, in conformity with the orders of the probate court and Florida law, transferred each note and mortgage from the Personal Representative to the Trustee of her Revocable Trust.
“But I thought that all my assets were already in my trust!” she exclaimed.
She went ahead and signed the amendment to her revocable trust, but just could not for several months come to grips with the idea that she would have to pay additional legal fees to deal with the notes and mortgages. Finally, she came around, and we completed that work together. It was much less expensive for us to get those assets into her trust than it would have been at her death had she done nothing.
Revocable Trusts are in most cases a great advantage in a well conceived and executed estate plan. Signing the documents alone to create a Revocable Trust plan does not complete such a plan. It always comes down to the assets and how they are owned, always that.