Posted by: Woodfork Law | May 15, 2013

Assets not in a Trust

The following is the opposite of an article I wrote in the past.  In the past, I wrote that a major problem with trusts is that people forget to put assets into a trust.  Basically, people forget to re-title assets in the trust name.

However, the opposite could also be a problem – putting too many assets into a trust.  The most common mistake is to put assets such as cars, motorcycles, or boats into a trust.  To add these assets to your trust, you re-title the assets in the name of the trust. The problems are two-fold.  First, when you re-title cars or boats into the name of the trust, your insurance rates may increase.  Second, similar to houses, if there is a loan on the car or boat, there may be a “due-on-sale” clause.  A due-on-sale clause states that if title is transferred, the full amount of the loan is due immediately.

Another issue you may consider, is keeping out assets with “beneficiary designations.”  The most common, are retirement accounts, bank accounts, brokerage accounts, and insurance policies.  When you open these accounts, you designate who will take them when you pass.  These items stay outside of probate, and normally do not go into a trust.

A final concern when dealing with “beneficiary designations” are conflicts.  This applies to Wills in addition to Trusts.  You want to be careful that you do not leave the same asset to two different people, one on the beneficiary designation, and one in a will.  For example, if you mistakenly list your son as the beneficiary on your bank account, and state in your will that you desire your daughter to take the bank account by will, this is a conflict.  In such a conflict, the beneficiary designation controls.


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