Wealth Planning Insights
Funding your Revocable Living Trust with Real Property
Jeffrey A. Speight, CFP®, April 2022
Tanglewood has long espoused the benefits of Revocable Living Trusts (RLT). An RLT allows you to transfer ownership of your assets into it while maintaining control over those assets during your lifetime.
Benefits of an RLT include:
Avoids probate
Flexibility and control
Privacy
Continuity of management
This article focuses specifically on the importance of including all real property (including your home) into an RLT.
Unlike a will that requires involvement from the probate courts, an RLT allows a successor trustee to immediately step in to make management decisions on the property without delay.
If you have an RLT, fund it
Many people who have a living trust never retitle their real property into it. If this is you, keep in mind the executor of your will cannot transfer property from your estate to your RLT until after the probate court names them as executor, something you wanted to avoid in the first place.
This is especially important for clients who own property in more than one state as probate in certain states (e.g. California) are more cumbersome than in others. Retitling out of state real property into an RLT will not only avoid the time and expense of ancillary probate, but it allows for continuous management of these assets.
Putting your residence and other assets into an RLT today saves time and resources later. As many people age, they risk potential incapacity and/or dementia; making it much more difficult to retitle assets.
Contact your insurance agent
Finally, after you retitle your real property into an RLT, contact your insurance agent to discuss adding the trust as an “additional named insured” on both your homeowner’s and umbrella policies. If a home is damaged by fire or flood, the individual persons have an insurable interest in the home contents, but the living trust technically has an insurable interest in the structure. If the trust is not also added to the policy, it is possible the insurance company will pay the claim on the contents, but not on the structure.