Names are important. A little boy named Wilfred today, compared to in the past, may have to quickly learn how to defend himself on the school playground. Companies spend millions of dollars coming up with just the right name for their new products. We’ve all heard of how Chevrolet had a hard time selling its Nova automobile in Latin America. GM executives puzzled over the difficulty until they realized what “No va” means in Spanish – “It doesn’t go!”
Names are also important in estate planning. How an account is titled can mean the difference between whether a probate administration is going to be required on the account owner’s death or not.
Assume that John Smith has his estate planning attorney prepare a revocable living trust. The attorney doesn’t ask John about his specific accounts – but gives John a sheet describing how his accounts should be titled. John notices at the end of his revocable living trust is a sheet of paper entitled “Schedule A – Trust Assets”.
So John gets to work. He starts by typing all his account information on that Schedule A. He lists his bank accounts and his brokerage accounts. Someone tells him that he should put all his real property into his trust, so he takes his Schedule A and adds to it the addresses of all real estate he owns.
Do you think that John has properly aligned his assets with his trust? By “aligning assets” I mean transferring title to all of the assets that would have been subject to probate at his death if they are not titled into his trust?
If you said “No – he has not properly transferred the title to his assets” then you would be correct! To properly transfer title to your accounts into your trust – the account title – its name – must change. Instead of the bank statement titled in the name of John Smith – it should be titled in the name of John Smith, Trustee for the John Smith Trust dated August 1, 2018
The same holds true with John’s brokerage accounts and his deeds. He needs to work with his brokerage firms to make sure that he renames his account into the name of his trust. This usually means that he must fill out some paperwork with the financial institution. John continues to use his social security number as his tax identification number for the accounts since his revocable living trust is deemed a “grantor trust” under the IRS tax code. In other words, the trust is invisible to the IRS during John’s lifetime. He continues to file his tax returns as if he does not have a trust.
How about the deeds to his real property? Those need to be changed too. Here, John would be well advised to ask his attorney to make the transfer. The attorney may create a deed that John signs, transferring the real estate from himself to himself as trustee for his trust. In Florida, it is important that the deed contain special powers that are enumerated under a state statute so that when John (or his heirs) sell the property one day they don’t have to record the trust or any special affidavits.
In other states, like Massachusetts, the attorney may create a special type of trust that acts as a shell-like entity to hold title so that one does not have to record the entire trust in the public records to transfer title to the property. Not only could recording the trust be very expensive – it also subjects it to public review. Anyone who wants to see the contents of the trust may do so. Usually you want to keep the contents of your trust private.
When you are married and there is Florida homestead involved, titling the property into the trust without considering the effects of Florida’s descent and devise laws could result in unintended and adverse consequence.
I hope that you can now see that a name is very important if you have a trust. You should always make sure that all your accounts and properties are named properly. Even if your first name is Wilfred.
© 2018 Craig R. Hersch. Originally published in the Sanibel Island Sun.