Mrs Smith came to my office. She had just lost her husband. It was a very hard time for her. She handed me a copy of the revocable living trust that she and Mr. Smith had paid a lawyer to help them set up some years ago in another state. After a little digging, and finally tracking down that out-of-state lawyer, who had moved to new offices in the meantime, I discovered the bad news. The Smiths had a very nice looking trust document, but it was nothing more than a small stack of paper. None of their assets had been transferred into the trust. So the trust was really nothing more than a very expensive stack of paper. We had to file a petition in probate court to name an executor and administer the estate according to the terms of the "empty" trust. The primary reason why people create revocable living trusts in the first place is to avoid the time and money associated with having to "probate" their estates. Here in California, attorneys fees for probate are set by statute at 4% of the estate. For a relatively modest $500,000 estate (remember the estate includes your home!), that means $13,000 in attorneys fees, and that doesn't include court fees, appraisal fees and other fees that might have to be paid. Now, I don't know what the Smiths paid for their trust, but chances are it wasn't more than $2,500, and had they actually funded their trust by transferring their home, bank accounts and any other assets into the trust, they might have spent a little more in filing fees, notary fees, etc. But they didn't. So instead of spending $2,700 or so to have the estate pass seamlessly to Mrs. Smith, the Smiths spent far more, and Mrs. Smith had to suffer through the time, expense and hassle of a lengthy court process in order to get everything transferred to her.
The bottom line is - if you have a living trust (and chances are, you should), you must take the final step of transferring your assets into the trust. In my estate planning law practice, we always assist our estate planning clients, not just with creating paper, but with making sure that their assets are properly transferred into the trust so that their trust is more than some very expensive paper.
