Are you forgetting to title certain assets in your living trust?
Creating a living trust is one of the most effective ways for Idaho residents to ensure their assets transfer efficiently to their loved ones while avoiding probate. However, even the most carefully drafted trust document is only effective for assets that have been properly titled in the name of the trust. As an Idaho estate planning attorney, I regularly see clients overlook several important assets when funding their trusts.
The "Empty Trust" Problem
Your living trust is like a safe — it only protects what you put inside it. Failing to transfer assets into your trust (known as "funding" the trust) means those assets may still require probate, defeating a primary purpose of creating the trust in the first place. There are some types of assets that do not need to be funded to a trust in order for the asset to avoid probate. A good example would be the payout from a life insurance policy or a retirement account — so long as you have named beneficiaries for such assets. However, many types of assets must be in your trust to avoid probate.
Here are six commonly forgotten assets that Idaho residents often fail to title in their living trust's name:
1. Small Bank Accounts
While most people remember to transfer their primary (larger) checking and savings accounts to their trust, smaller accounts often go overlooked. That old savings account you opened years ago, the Christmas club account, or the emergency fund at your local credit union — need to be retitled in your trust's name to avoid probate, OR you need to name a Pay on Death (“POD”) Recipient at your bank for these accounts. A POD recipient will be able to collect the funds in an account without needing to go through probate. So, the way to think about bank accounts and probate avoidance is that all your bank accounts need to either be title in the name of your trust or have named POD recipients. Doing either one or the other will avoid probate.
2. Business Interests in LLCs and Partnerships
Many small business owners in Idaho create a living trust but forget to transfer their business interests into it. If you own an interest in a limited liability company, a partnership, or shares in a closely-held corporation, these interests should be titled in your trust's name — subject to any operating agreement restrictions.
3. Vehicles with Significant Value
While everyday vehicles in Idaho can typically transfer via affidavit without probate, valuable collector cars, RVs, boats, and aircraft, or any vehicle valued at $100,000.00 or more should be considered for transfer to your trust. Keep in mind that retitling vehicles may affect insurance coverage, so consult with your insurance provider when making this change.
4. Intellectual Property
Patents, trademarks, copyrights, and royalty rights are frequently overlooked trust assets. For authors, artists, inventors, and small business owners in Idaho, these intellectual property rights can be valuable assets that should be properly titled in your trust's name.
5. Personal Effects with Monetary or Sentimental Value
A well written living trust should include a general assignment of personal property — antiques, art collections, jewelry, furniture, hobby items, firearms, family heirlooms, etc. — should be assigned to your trust to be clear you do not intend for such items to be subject to probate. The good news is that the documentation used to make such an assignment does not need to list out every item in detail. A single document can typically assign all such tangible items to your trust in one fell swoop.
Beyond the Initial Funding
Remember that funding your trust isn't a one-time event. As you acquire new assets throughout your lifetime, you'll need to title them in your trust's name. Many estate plans fail not because of poor drafting, but because of inconsistent follow-through on trust funding after the initial set up. Have you established any new bank accounts after you set up your trust? Have you bought any new real estate? Have you started a business or become a partner in one?
Can Your Will Save the Day?
Idaho law provides some flexibility for assets inadvertently left out of a trust through use of a special type of will called a “pour-over will,” but relying on these backup measures typically means some level of probate involvement — exactly what your trust was designed to avoid. While every well drafted trust document will be accompanied by an equally well drafted pour-over will that is designed to get assets moved into your trust after your death, those wills can only be used by going to court. This is a safety net, not a plan A.
Creating a comprehensive trust-centered estate plan provides tremendous peace of mind, but only if you follow through with proper funding. By ensuring all your assets — even the commonly forgotten ones listed above — are properly titled in your trust's name, you provide your loved ones with the gift of simplicity during an already difficult time.
My law firm is currently offering free telephonic, electronic, or in-person consultations concerning creating or reviewing estate planning documents.
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Robert J. Green is an Elder Law, Trust, Estate, & Guardianship Attorney and the owner of Kootenai Law Group, PLLC in Coeur d’Alene. If you have questions about estate planning, probates, wills, trusts, powers of attorney, guardianships, Medicaid planning, or VA Benefit planning, contact Kootenai Law at 208-765-6555, Info@KootenaiLaw.com, or visit www.KootenaiLaw.com.
This has been presented as general information and not as legal advice. Do not engage in legal decision-making without the advice of a competent attorney after discussion of your specific circumstances.