Assets in Trust? Easier Said Than Done

Let’s say you set up a living trust.  Are you sure your assets are in that trust?  Many people specify assets they want included in the trust in the document itself but that doesn’t mean a thing.  When that happens they set themselves up for big headaches. The problem is that people think  everything is set up correctly when they aren’t.  That’s a big ‘no bueno” amigo because it can lead to long, expensive, painful probate.  Yuk.

Yesterday, a client came to see me for a financial review. I asked her about her estate planning.

“Everything is handled….I just had my living trust updated” she told me.

During the course of the review, she told me that she had several hundred shares of stock in her own name.   But if the shares were in her name that means they were not actually in her trust.

It turns out my client inherited those shares from her mother and she never bothered to change the title. She was also her mother’s life insurance beneficiary and bought more shares with the proceeds of the policy. She kept those shares in her own name too.

When I pointed out that those shares were not held in trust and would have to be probated after she passed away, she told me that she’d deal with it right away.

I asked her what she planned on doing.

“I’ll amend the trust to make sure those shares are named in the trust” she replied.

I told her that doing so would have no effect whatsoever. When I told her this, she was stunned. She thought that the way to include assets in the trust was to simply list them in the trust document itself. I explained that the only way to make sure assets are in a trust is to re-title them.

In this case, I suggested that after consulting with her attorney, she should contract the custodian of the assets and work with them to re-register the shares in the name of the trust. This is a simple and free process. Many people overlook this and falsely assume assets are in their trust when they are not.

The problem is, when they die, those assets may be subject to probate (if they are in one person’s name alone) or go to the wrong person if they are held as tenants in common or joint tenants. This is terrible because it’s a problem that is expensive and time consuming to fix– especially since they already went through the bother and expense of setting up their living trust.

Understand that this is not really an issue of when to review your living trust. It’s an issue of really understanding how the trust works. Unfortunately many attorneys don’t take a full and accurate inventory of your assets and that’s how mistakes like these happen. How can you make sure this doesn’t happen to you?

Here’s is a simple three-step process to make sure you end up with all your assets in trust:

1. List

For starters, make sure you make a full and complete inventory of every investment and asset you have before you set up your trust.

2. Re-title

If you own real estate, your attorney should handle the re-titling of that real estate into the trust. If not, the least she should do is give you explicit instructions on how to get it done. Also, if she doesn’t re-title your other assets, she’ll give you documents that explain how to re-title your other accounts. This is really simple.  Just make sure your lawyer gives you this information.

You just take the documents down to the bank and to your financial institutions and tell them to re-title the assets. It’s so simple. Just go to the bank. Hand them a copy of the document and your account number and sign. They’ll know what to do.

While you’re on this step, make sure not to re-title your retirement accounts. If you do this, you’ll end up in a world of hurt. That will turn your nice tax deferred accounts into a big ball of taxable income. Don’t do it. It hurts. (You may want to name your trust as your IRA beneficiary but that’s the subject of another post.)

3. Trust but Verify

No…I’m not asking you to go on a NATO mission. You need to verify that your lawyers, bankers and advisors actually did re-title the assets. You also need to make sure you didn’t let some asset slip through the cracks because you forgot to include it in your list.

This is very easy. Just look at your investment statements. If they are in the trust, they’ll say so. If they don’t say so, you’ve got a problem. Pick up the phone and get those lazy clerks to put down the doughnuts and designer coffees they can’t afford and get to work. You can also verify that your real estate is correctly in your trust buy looking at the tax statements. If the real estate is correctly in the trust, the tax bill will reflect that.

Making sure your assets are titled correctly is as important as what you do to accumulate the asset in the first place. It’s a total shame when folks work so hard to acquire wealth and then lose so much of it because they overlook something as simple as the title.

Has this happened to you or someone you know? What was the result?